As filed with the Securities and Exchange Commission on November 10, 1998
Securities Act Registration No. 33363145
Investment Company Act File No. 811-08991
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-2
(X) REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(X) Pre-Effective Amendment No. __1__
( ) Post-Effective Amendment No. _____
and
(X) REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
(X) Amendment No. 1
THE BLACKROCK HIGH YIELD TRUST
(Exact name of Registrant as specified in charter)
c/o BlackRock Financial Management, Inc.
345 Park Avenue
New York, New York 10154
(Address of principal executive offices)
(800) 227-7236
(Registrant's Telephone Number, including Area Code)
Ralph L. Schlosstein
President
The BlackRock High Yield Trust
345 Park Avenue
New York, New York 10154
(Name and address of Agent for Service)
with a copy to:
Thomas A. Hale
Skadden, Arps, Slate, Meagher & Flom (Illinois) and Affiliates
333 West Wacker Drive
Chicago, Illinois 60606-1285
______________________________________
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement.
If any securities on this form are to be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933, other than
securities offered in connection with a dividend reinvestment plan, check
the following box . . . . . . . . . . . .( )
( ) This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is 33-__________.
______________________________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered(1) Per Share Offering Price Fee
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares, no par
value 690,000 $15.00 10,350,000 $3,054
=====================================================================================
</TABLE>
(1) Includes 90,000 shares which may be purchased by the Underwriters to cover
over-allotments, if any.
(2) A fee of $3,054 was paid on September 10, 1998.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
the Registration Statement shall thereafter become effective in accordance
with Section 8 (a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the Commission, acting
pursuant to said Section 8(a), may determine.
THE BLACKROCK HIGH YIELD TRUST
CROSS REFERENCE SHEET
(Pursuant to Rule 404(c) under the Securities Act of 1933)
Parts A & B of Prospectus*
Item 1. Outside Front Cover . . . . . . . Front Cover Page
Item 2. Inside Front and Outside
Back Cover Page . . . . . . . Front Cover Page; Inside
Front Cover Page; Outside
Back Cover Page
Item 3. Fee Table and Synopsis . . . . . . Prospectus Summary; Fee
Table
Item 4. Financial Highlights . . . . . . . Not Applicable
Item 5. Plan of Distribution . . . . . . . Front Cover Page;
Prospectus Summary;
Distribution
Item 6. Selling Shareholders . . . . . . . Not Applicable
Item 7. Use of Proceeds . . . . . . . . . . Use of Proceeds;
Investment Objective and
Policies
Item 8. General Description of the
Registrant . . . . . . . . . . Front Cover Page;
Prospectus Summary; The
Trust; Investment
Objective and Policies;
Risk Factors
Item 9. Management . . . . . . . . . . . . Management of the Trust
Item 10. Capital Stock, Long-Term Debt,
and Other Securities . . . . Description of the Shares
Item 11. Defaults and Arrears on Senior
Securities . . . . . . . . . Not Applicable
Item 12. Legal Proceedings . . . . . . . . . Not Applicable
Item 13. Table of Contents of the Statement
of Additional Information . . Not Applicable
Item 14. Cover Page . . . . . . . . . . . . . Not Applicable
Item 15. Table of Contents . . . . . . . . . Not Applicable
Item 16. General Information and History . . The Trust
Item 17. Investment Objective
and Policies . . . . . . . . Investment Objective and
Policies
Item 18. Management . . . . . . . . . . . . . Management of the Trust
Item 19. Control Persons and Principal
Holders of Securities . . . . Management of the Trust
Item 20. Investment Advisory
and Other Services . . . . . Management of the Trust
Item 21. Brokerage Allocation and
Other Practices . . . . . . . Investment Objective and
Policies
Item 22. Tax Status . . . . . . . . . . . . . Taxes
Item 23. Financial Statements . . . . . . . Statements of Assets and
Liabilities
* Pursuant to the General Instructions of Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has
been included in Part A: The Prospectus. Information required to be
included in Part C is set forth under the appropriate item, so numbered in
Part C of this Registration Statement.
[FLAG]
The information in this Prospectus is not complete and may be changed.
BlackRock may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is
not permitted.
- ------------------------------------------------------------------------------
SUBJECT TO COMPLETION-DATED NOVEMBER , 1998
PROSPECTUS
Shares of
THE BLACKROCK HIGH YIELD TRUST
- -------------------------------------------------------------------------------
The BlackRock High Yield Trust (the "Trust") is a newly-organized
closed-end fund. Our objective is to generate high current income and, to a
lesser extent, to seek capital appreciation. We will invest our assets
primarily in a diversified portfolio of "high-risk, high yield" securities.
These are securities, mostly bonds but also preferred stocks, rated "Ba" or
lower by Moody's or "BB" or lower by Standard & Poor's or not rated by any
rating agency but which our investment adviser believes are comparable to
securities rated in these categories. We may use certain investment
strategies, such as borrowing money to purchase additional securities, to
try to achieve our objective of high current income. Some of the Trust's
strategies will result in an above average amount of risk and volatility
and may increase your risk of loss on your investment in the Trust. There
is, of course, no guarantee that we will achieve our investment
objectives.
BlackRock Advisors, Inc. will act as our investment adviser. BlackRock
Advisors, Inc. is a global asset management company that manages a broad
range of investment products, including a family of open-end funds (i.e.,
mutual funds) and closed-end funds, for clients worldwide. BlackRock
Advisors, Inc. manages client assets totaling over $120 billion. One of
BlackRock Advisors, Inc.'s affiliates, BlackRock Financial Management, Inc.
(or "BlackRock") will handle the day-to-day investment management of the
Trust.
By this Prospectus we are offering Shares of the Trust at a subscription
price of $15.00 per Share. BlackRock Advisors, Inc. or one of its
affiliates (not the Trust or its investors) will pay the sales load or
underwriting commission on the Shares you buy from its own assets to the
Underwriters or participating institutions in this offering equal to ____%
of the Subscription Price per Share. The right to request to subscribe for
Shares is being offered to a limited number of potential investors. It is
being offered to investors who hold shares of The BlackRock 1998 Term Trust
Inc. as of the close of business on November 12, 1998. The BlackRock 1998
Term Trust is scheduled to liquidate around December 31, 1998 and, in
connection with this offering, holders of shares of The BlackRock 1998 Term
Trust may use all or a portion of their distribution from the liquidation of
The BlackRock 1998 Term Trust to purchase Shares of the Trust. Because it is
possible that this liquidating distribution may not be made prior to the
payment date for the Shares of the Trust, you should consult with your
broker or financial adviser to make sure that you have available sufficient
other funds for the purchase of the Shares. We are also offering the right
to request to subscribe for Shares to those who are shareholders, as of
November 12, 1998, of all other closed-end funds managed by BlackRock. A
description of how to go about purchasing and paying for Shares of the
Trust in this offering can be found on page __ of this Prospectus. You
should know that an investment in the Trust is not comparable or similar to
your current investment in the BlackRock 1998 Term Trust or any other
closed-end funds managed by BlackRock.
Because of the high risk nature of the securities that will be purchased
for the Trust's portfolio, an investment in the Shares may not be suitable
for all investors who own shares of the other BlackRock closed-end funds.
Please consult with your broker or financial advisor, who may deem this
type of investment to be inappropriate for your risk profile, prior to
making your investment decision. The minimum amount of Shares you can buy
in this offering is 100 Shares (or $1,500). Currently, there is no public
market for Shares of the Trust. However, once this offering is over, we
will have the Shares listed on the New York Stock Exchange under the symbol
"BHY." You should be aware that shares of closed-end funds often have
traded at a discount from their net asset values and the Shares of the
Trust may likewise trade at such a discount. This public offering is a
firm commitment underwriting.
Per Share Total
--------- -----
Subscription Price........... $15.00 $
Sales load................... None None
Proceeds to the Trust,
before expenses............ $15.00 $
This investment involves a high degree of risk. See "Risk Factors and
Special Considerations" beginning on page __ of this Prospectus for
factors that you should consider in connection with an investment in the
Shares of the Trust.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
Delivery and payment for the Shares will be on or about December , 1998.
--------------------
Prudential Securities Incorporated
Merrill Lynch & Co.
Paine Webber Incorporated
Salomon Smith Barney
December , 1998
(Continued from cover page)
We have granted the Underwriters a [45]-day option to purchase up to
__________ additional Shares, solely to cover over-allotments, which they
may exercise up to three times during the [45]-day period at the public
offering price. Assuming all those additional Shares are purchased by the
Underwriters, the total proceeds to the Trust from the offering would be
$__________. The Trust will pay offering expenses of $__________
($__________ if the over-allotment option is exercised in full), which will
be deducted from the total proceeds of the offering. BlackRock Advisors,
Inc. or an affiliate will pay all offering expenses that exceed $0.02 per
Share.
This Prospectus provides information about the Trust that you should know
before investing in the Trust. You should read this Prospectus carefully
and retain it for future reference. The SEC maintains an Internet World
Wide Web site (HTTP://WWW.SEC.GOV) that contains this Prospectus. You may
call or write the Trust at 345 Park Avenue, New York, New York 10154,
telephone number 800-227-7236.
An investment in the Trust is not a deposit of any bank or other
insured depository institution. Your investment is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
TABLE OF CONTENTS
Page
Prospectus Summary............................................................
Trust Expenses................................................................
The Trust.....................................................................
Use of Proceeds...............................................................
Investment Objectives and Policies............................................
Other Investment Practices....................................................
Risk Factors and Special Considerations.......................................
Investment Restrictions.......................................................
Terms of the Offering.........................................................
Management of the Trust.......................................................
Trustees and Officers.........................................................
Portfolio Transactions........................................................
Determination of Net Asset Value..............................................
Dividends and Distributions..................................................
Taxes.........................................................................
Automatic Dividend Reinvestment Plan..........................................
Custodian and Transfer
Agent and Dividend Disbursing Agent.........................................
Distribution..................................................................
Description of Shares.........................................................
Additional Information........................................................
Legal Opinions................................................................
Experts.......................................................................
Independent Auditors' Report..................................................
Statement of Assets...........................................................
Appendix A: Bond Ratings...................................................A-1
Appendix B: General Characteristics and
Risks of Strategic Transactions.........................................B-1
Appendix C: Description of Mortgage-
Related Securities......................................................C-1
Prospectus Summary
This summary highlights some information from this Prospectus. It may not
contain all the information that is important to you. To understand this
offering fully, you should read the entire Prospectus carefully. In
particular, you should read carefully and consider the information provided
under the heading "Risk Factors and Special Considerations" beginning on
page __. You should also know that an investment in the Trust is not
comparable or similar to your current investment in the BlackRock 1998
Term Trust or any other closed-end funds managed by BlackRock.
The Trust The formal name of this trust is The BlackRock
High Yield Trust. Throughout this Prospectus, we
will refer to The BlackRock High Yield Trust
simply as the Trust or as "we," "us" or "our."
Our primary investment objective is to generate
high current income. To a lesser extent, and if
it is consistent with the primary objective, we
will also seek capital appreciation. To this end,
our assets will be invested primarily in a
diversified portfolio of high-risk, high yield
bonds and other income securities, such as
preferred stocks. The Trust is a closed-end fund.
BlackRock Advisors, Inc., a global asset
management company with approximately $120
billion of assets under management, will act as
our investment adviser and its affiliate,
BlackRock Financial Management, Inc. (or
"BlackRock") will handle the day-to-day
investment management of the Trust.
The Offering By this Prospectus, we are offering
Shares of the Trust at a subscription price of
$15.00 per Share. BlackRock Advisors, Inc. or one
of its affiliates (not the Trust or its
investors) will pay the sales load or
underwriting commission out of its own assets to
the Underwriters or participating institutions in
this offering equal to ____% of the Subscription
Price per Share. The right to request to
subscribe for Shares is being offered to
investors who hold shares of The BlackRock 1998
Term Trust Inc. as of the close of business on
November 12, 1998. The BlackRock 1998 Term Trust
is scheduled to liquidate around December 31,
1998 and, in connection with this offering,
holders of shares of The BlackRock 1998 Term
Trust may use all or a portion of their
distribution from the liquidation of The
BlackRock 1998 Term Trust to purchase Shares of
the Trust. We are also offering the right to
request to subscribe for Shares to those
investors who are shareholders, as of November
12, 1998, of the other closed-end funds managed
by BlackRock. A description of how to purchase
and pay for Shares of the Trust in this offering
can be found under the heading "Terms of the
Offering" on page __ of this Prospectus. The
minimum amount of Shares you can buy in this
offering is 100 Shares (or $1,500).
Sales Charge
Payable by BlackRock
Advisors, Inc. BlackRock Advisors, Inc. or one of its affiliates
will pay out of its own assets (not the Trust
or its investors) a sales load or
underwriting commission for sales of Shares in
this offering.
Investment Objectives
and Policies Investment Objectives. Our primary objective is
to generate high current income. To a lesser
extent, and if it is consistent with our primary
objective, we will also seek capital
appreciation. The Trust is designed for investors
willing to assume additional risk in return for
the potential for high current income and for
capital appreciation. Some of the Trust's
strategies will result in an above average amount
of risk and volatility and may increase your
risk of loss in your investment in the Trust. The
Trust is not intended to be a complete investment
program. There is no guarantee or assurance that
the Trust will achieve either of its objectives.
Investment Policies. In line with our investment
objectives, we will invest our assets primarily
in a diversified portfolio of high-risk,
high-yield bonds and other income securities,
such as preferred stocks. Under normal market
conditions, we expect to have at least 80% of our
total assets invested in such high-risk,
high-yield securities. High-risk, high yield
securities are generally income securities which,
if rated at the time of purchase, are rated lower
than Baa by Moody's Investors Service, Inc. (or
"Moody's" for short), lower than BBB by Standard
& Poor's Ratings Group (or "S&P" for short) or
similarly rated by other rating agencies. Bond
ratings are assigned by a rating agency based on
the agency's determination of the ability of the
issuer to pay interest and repay principal when
due. Bonds rated Baa/BBB and higher are described
as "investment grade," while lower grade
securities (those with ratings lower than Baa/BBB
or unrated bonds of similar quality) are
classified as "non-investment grade" or "junk
bonds." We will invest primarily in lower grade
securities, which may include securities that are
not rated by any rating agency but which
BlackRock believes to be comparable to securities
rated lower grade.
The securities in which we may invest include the
following:
-Straight Income Securities. These include bonds
and other debt obligations, which generally have
fixed or variable interest rates with payments
due at regular intervals. These also include
preferred stocks, which generally have a fixed or
variable dividend rate (unlike interest payable
on debt securities, dividends payable on
preferred stocks must be declared by the issuer's
board of directors). Income securities may be
convertible into equity securities and the terms
of the income securities may include features
such as call provisions and sinking funds.
-Zero-Coupon, Pay-in-Kind and Deferred Payment
Securities. Pay-in-kind securities pay interest
in additional income securities rather than cash.
Zero-coupon securities have no current interest
payment obligation; they are issued at a discount
from their stated value at maturity. When held to
scheduled maturity, the increase in price from
the purchase price to the maturity price
compensates the investor for receiving no current
interest on the security. Deferred payment
securities have no current interest payment
obligation and convert on a specified date to
interest-bearing income securities. The Trust
will not invest more than 30% of its total assets
in these types of income securities.
-Bank Loans. Bank Loans are loans extended to
corporate and other borrowers by commercial banks
or other financial institutions. They may have
fixed interest rates, but often pay interest at
rates that are reset periodically on the basis of
a market reference rate plus a premium. Bank
Loans may be secured by specific collateral or
they may be unsecured. The Trust will not invest
more than 25% of its total assets in Bank Loans.
-Mezzanine Investments. Mezzanine Investments are
debt securities that generally are privately
issued, unsecured and subordinated to other
obligations of the issuer. Mezzanine Investments
often are convertible into equity securities of
the issuer or are issued with related warrants,
options or other equity securities attached. The
Trust will not invest more than 15% of its total
assets in Mezzanine Investments.
-Collateralized Bond Obligations. Collateralized
Bond Obligations (or "CBOs") are structured
securities backed by a pool of income securities.
CBOs are typically separated into tranches
representing differing degrees of credit quality.
The top tranche represents the highest credit
quality, has the greatest collateralization from
the underlying pool of income securities and has
the lowest interest rate. Lower CBO tranches have
lower credit quality and have higher interest
rates to compensate for the increased risks. The
Trust will not invest more than 15% of its total
assets in CBOs.
-Distressed Securities. Distressed Securities are
securities where the issuer is in a bankruptcy
reorganization proceeding, is subject to some
other form of public or private debt
restructuring, is otherwise in default or in
significant risk of being in default as to the
payment of interest or repayment of principal or
are securities trading at prices substantially below
other lower grade securities of companies in similar
industries. Under normal market conditions, the
Trust will invest in Distressed Securities that
are producing current income. At times,
Distressed Securities may not produce current
income. Although Distressed Securities are
particularly speculative investments, they
provide the opportunity for enhanced income and
capital appreciation. The Trust will not invest
more than 10% of its total assets in Distressed
Securities.
-Mortgage-Related and Asset-Backed Securities.
Mortgage-related securities are structured
securities of mortgage loans on residential and
commercial properties. Commercial mortgage-backed
securities (or "CMBS") are secured by commercial
property, such as industrial and warehouse
properties, office buildings, retail space and
shopping malls, multi-family properties and
cooperative apartments, hotels and motels,
nursing homes, hospitals, senior living centers
and agricultural property. Assets underlying
commercial mortgage-backed securities may relate
to only a few properties or to a single property.
The Trust will not invest more than 15% of its
total assets in CMBS and, under current market
conditions, the Trust does not expect to invest
in other types of mortgage-related securities.
Asset-backed securities are similar in structure
to mortgage-related securities, but the
underlying collateral is generally consumer debt,
including home equity loans, automobile and
credit card receivables, boat loans, computer
leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account
receivables. Interest payments on these
securities may be fixed or variable and may be
structured to vary inversely with movements in
market rates of interest.
-Foreign Securities. Although it does not
currently expect to do so, the Trust may invest
up to 35% of its total assets in Foreign
Securities, which are income securities issued by
non-U.S. issuers or that are denominated in
various foreign currencies. Foreign Securities
include income securities issued by foreign
governments and other sovereign entities and debt
securities issued by foreign corporations.
Typically, the Trust will not hold any Foreign
Securities of issuers in so-called "emerging
markets" (or lesser developed countries), and in
any case the Trust will not invest more than 10%
of its total assets in such securities.
Other Securities. For a description of other
securities in which the Trust may invest, see
"Investment Objectives and Policies."
Investment Strategy. In selecting income
securities for the Trust's portfolio, BlackRock
will seek to identify issuers and industries that
BlackRock believes are likely to experience
stable or improving financial conditions.
BlackRock believes this strategy should enhance
the Trust's ability to earn high current income
and achieve capital appreciation. BlackRock's
analysis may include:
o Credit research on the issuers' financial
strength;
o Assessment of the issuer's ability to meet
principal and interest payments;
o General industry trends; o The issuer's
managerial strength; o Changing financial
conditions; o Borrowing requirements or debt
maturity schedules; and
o The issuer's responsiveness to changes in
business conditions and interest rates.
BlackRock may also consider relative values among
issuers based on anticipated cash flow, interest
or dividend coverage, asset coverage and earnings
prospects.
In certain market conditions, the Trust may
implement various temporary "defensive"
strategies at times when BlackRock determines
that conditions in the markets make pursuing the
Trust's basic investment strategy inconsistent
with the best interests of its shareholders.
These strategies may include investing all or a
portion of the Trust's assets in higher-quality,
short-term income securities. In addition,
BlackRock may determine that investment grade
quality securities offer attractive opportunities
for high current income and capital appreciation.
In such conditions, the Trust may decide to
invest less than 80% of its total assets in lower
grade income securities.
Risk Management. BlackRock's approach to managing
high yield investments is to apply its risk
management framework by utilizing proprietary
technology and value-oriented security selection
to identify the securities that are expected to
deliver the highest yield for the amount of risk
assumed. The Trust's investment strategy
emphasizes risk management through the following
process:
o Creating a diversified portfolio of
securities within various sectors of the high
yield market;
o Performing individual, company-by-company
credit research to seek to select
securities which BlackRock believes will be
able to meet its debt obligations;
o Performing sector analysis to determine the
sectors which BlackRock expects to have
stable or improving credit quality in the
future; and
o Utilizing the expertise and experience of
the management team to make investment
decisions.
Investment Practices. In seeking to achieve our
investment objectives, we may also use a number
of other investment practices and techniques,
including:
-Leverage. We expect to use financial leverage
through borrowings, including a line of credit,
the issuance of debt securities, or the issuance
of preferred shares or through other transactions
such as reverse repurchase agreements, which have
the effect of financial leverage. We expect that
as the Trust becomes fully invested we will use
financial leverage in an amount up to 33 1/3% of
our total assets (including the amount obtained
through leverage). Use of financial leverage
creates the opportunity for higher income and
capital appreciation for the Shareholders but, at
the same time, magnifies the effect of any losses
and involves other risks described below.
-Other Investment Management Techniques. Although
not intended to be a significant element in the
Trust's investment strategy, from time to time
the Trust may use various other investment
management techniques that also involve certain
risks and special considerations, including:
o Engaging in interest rate and credit
derivatives transactions;
o Engaging in foreign currency transactions
in connection with the Trust's investment
in foreign securities;
o Using options and financial futures;
o Making forward commitments; and
o Lending its portfolio securities.
Management of the Trust BlackRock Advisors, Inc. will act as our
investment adviser. BlackRock Advisors, Inc. is a
global asset management company that manages a
broad range of investment products, including a
family of 35 open-end funds (i.e., mutual funds)
and 21 closed-end funds, for clients worldwide.
BlackRock Advisors, Inc. manages client assets
totaling over $120 billion. One of BlackRock
Advisors, Inc.'s affiliates, BlackRock Financial
Management, Inc. (or "BlackRock") will handle the
day-to-day investment management of the Trust.
BlackRock was founded in 1988 and manages stocks,
bonds and money market instruments on a global
basis. BlackRock has expertise in the government,
mortgage, corporate, asset-backed, non-dollar,
high yield and municipal sectors of the
fixed-income securities market. BlackRock
currently manages over $60 billion in fixed
income assets invested across the credit quality
spectrum and yield curve. BlackRock also manages
approximately $44.2 billion in cash or other
short-term, highly liquid investments, $12.6
billion of equity securities and $1.6 billion
in various alternative investments. The Trust
will pay BlackRock Advisors, Inc. a monthly fee
at the annual rate of 1.05% of the "Managed
Assets." Managed Assets equals the average weekly
value of the total assets of the Trust minus the
sum of accrued liabilities (other than the
aggregate indebtedness constituting financial
leverage). The advisory fee that we will pay to
BlackRock Advisors, Inc. (including those assets
purchased with leverage) will be higher if the
Trust uses financial leverage than if the Trust
does not use such leverage.
Administrator BlackRock and Prudential Investments Fund
Management LLC, an affiliate of Prudential
Securities Incorporated, will act as the Trust's
Administrators. The Trust will pay each
Administrator a monthly fee based on the Trust's
average weekly Managed Assets (as defined above)
at the annual rate of .05%.
Listing Prior to this Offering, there has been no public
market for the Shares. The Shares will be listed
for trading on the New York Stock Exchange under
the symbol "BHY."
Dividends and Other
Distributions We intend to pay monthly distributions to
Shareholders from our net investment income. The
initial distribution is expected to be paid
approximately 60 days after the date of this
Prospectus.
Automatic Dividend
Reinvesment Plan We have established an Automatic Dividend
Reinvestment Plan (the"Plan"). Under the Plan,
all distributions from the Trust automatically
will be reinvested in additional Shares of the
Trust. These additional Shares will either be
purchased in the open market, or newly issued by
the Trust, depending on whether the Shares are
trading at or above their net asset value.
Shareholders who want distributions to be paid in
cash must elect to do so. Shareholders who intend
to hold their Shares through a broker should
contact their broker to determine whether or how
they may participate in the Plan. See "Automatic
Dividend Reinvestment Plan."
Closed-end Fund
Structure The Trust is a newly-organized closed-end fund.
Closed-end funds differ from open-end funds (which
are commonly referred to as mutual funds) in that
closed-end funds, unlike mutual funds, generally
list their shares for trading on a stock exchange
and do not redeem their shares at the request of
the shareholder. This means that if you wish to
sell your shares of a closed-end fund you must
trade them on the market like any other stock at
the price prevailing in the market for the shares
at that time. With a mutual fund, shares may be
redeemed or bought back by the mutual fund at
"net asset value" if a shareholder wishes to sell
the shares of the fund. Also, mutual funds
generally offer new shares of the fund on a
continuous basis to new investors, whereas
closed-end funds do not. The continuous in-flows
and out-flows of assets in a mutual fund can make
it more difficult to manage the investments of a
mutual fund. By comparison, closed-end funds are
generally able to stay more fully invested in
securities that are consistent with their
investment objectives, and also have greater
flexibility to make certain types of investments
and to use certain investment strategies, such as
financial leverage.
However, shares of closed-end funds frequently
trade at a discount from their net asset value.
Because of this possibility, which may not be in
the interests of Shareholders, the Trust's Board
of Trustees might consider engaging in open
market repurchases, tender offers for Shares at
net asset value or other programs intended to
reduce the discount. There is, of course, no
guarantee or assurance that the Board of Trustees
will decide to engage in any of these actions.
Nor is there any guarantee or assurance that such
actions, if undertaken, would result in the
Shares trading at a price equal or close to net
asset value per Share. The Board of Trustees
might also consider converting the Trust to an
open-end mutual fund, which would also require a
vote of the Shareholders of the Trust. The Board
of Trustees believes, however, that the
closed-end structure is desirable, in light of
the Trust's investment objectives and policies.
Therefore, you should assume that it is not
likely that the Board of Trustees would vote to
convert the Trust to an open-end fund.
Risk Factors and Special
Considerations You should consider carefully your ability to
assume the following risks before investing in
the Shares of the Trust. An investment in the
Shares is different than an investment in The
BlackRock 1998 Term Trust and in the other
BlackRock closed-end funds, and may not be
suitable for all investors. Some of the Trust's
strategies will result in an above average amount
of risk of volatility and may increase your risk
of loss on your investment in the Trust. You
should not consider an investment in the Shares
as a complete investment program. You should also
read carefully the section of this Prospectus
titled "Risk Factors and Special Considerations"
which begins on page __.
General. As a newly-organized fund, the Trust has
no operating history. The Shares are designed
primarily for investors who plan to invest and
hold their investment for the long term.
Therefore, you should not consider the Shares as
a vehicle for trading purposes. The net asset
value of the Shares will fluctuate with changes
in interest rates, as well as with changes in the
prices of the securities owned by the Trust.
These fluctuations are likely to be greater when
the Trust is using financial leverage.
Lower-Grade Securities. As a "high yield fund,"
the majority of the Trusts assets will be
invested in high-risk, high yield securities of
lower grade quality, which are commonly referred
to as "junk bonds." With its portfolio consisting
predominantly of lower grade securities, the
Trust is exposed to greater risks than a fund
that owns higher grade securities. Because of the
substantial risks associated with lower grade
securities, you could lose money on your
investment in Shares of the Trust, both in the
short term and the long term. Here are some risks
you should consider.
o Credit Risk. Credit risk refers to an
issuer's ability to make payments of
principal and interest when they are due.
Because the Trust will own securities with
low credit quality, it will be subject to a
high level of credit risk. The credit
quality of such securities is considered
speculative by rating agencies with respect
to the issuer's ability to pay interest or
principal. The prices of lower grade
securities are more sensitive to negative
corporate developments, such as a decline
in profits, or adverse economic conditions,
such as a recession, than are the prices of
higher grade securities. Securities that
have longer maturities or that do not make
regular interest payments also fluctuate
more in price in response to negative
corporate or economic news. Therefore,
lower grade securities may experience high
default rates, which would mean that the
Trust may lose some of its investment in
such securities which would adversely
affect the Trust's net asset value and
ability to make distributions. The effects
of this default risk are significantly
greater for the holders of lower grade
securities because these securities often
are unsecured and subordinated to the
payment rights of other creditors of the
issuer.
o Market Risk. The prices of income
securities tend to fall as interest rates
rise. Securities that have longer
maturities tend to fluctuate more in price
in response to changes in market interest
rates. A decline in the prices of the
income securities owned by the Trust would
cause a decline in the net asset value of
the Trust, which could adversely affect the
trading price of the Trust's Shares. This
"market risk" is usually greater among
income securities with longer maturities or
durations. Although the Trust has no policy
governing the maturities of its
investments, the Trust expects that it will
invest in a portfolio of income securities
with an average maturity of approximately
ten years. This means that the Trust will
be subject to greater market risk (other
things being equal) than a fund investing
solely in shorter-term securities. Market
risk is often greater among certain types
of income securities, such as zero-coupon
bonds, which do not make regular interest
payments. As interest rates change, these
bonds often fluctuate in price more than
higher quality bonds that make regular
interest payments. Because the Trust may
invest in these types of income securities,
it may be subject to greater market risk
than a fund that invests only in current
interest paying securities.
o Income Risk. The income investors receive
from the Trust is based primarily on the
interest it earns from its investments,
which can vary widely over the short and
long term. If interest rates drop,
investors' income from the Trust over time
could drop as well if the Trust purchases
securities with lower interest coupons.
o Call Risk. If interest rates fall, it is
possible that issuers of callable bonds
with high interest coupons will "call" (or
prepay) their bonds before their maturity
date. If a call were exercised by the
issuer during a period of declining
interest rates, the Trust is likely to have
to replace such called security with a
lower yielding security. If that were to
happen, it would decrease the Trust's net
investment income.
o Liquidity Risk. The Trust may invest in
securities for which there is no readily
available trading market or which are
otherwise illiquid. The Trust may not be
able to readily dispose of such securities
at prices that approximate those at which
the Trust could sell such securities if
they were more widely-traded and, as a
result of such illiquidity, the Trust may
have to sell other investments or engage in
borrowing transactions if necessary to
raise cash to meet its obligations. In
addition, the limited liquidity could
affect the market price of the securities,
thereby adversely affecting the Trust's net
asset value and ability to make dividend
distributions.
Bank Loans. The Trust may invest up to 25% of its
total assets in Bank Loans. As in the case of
junk bonds, Bank Loans may be rated in lower
grade rating categories, or may be unrated but of
lower grade quality. As in the case of junk
bonds, Bank Loans can provide higher yields than
higher grade income securities but are subject to
greater credit and other risks. Although Bank
Loan obligations often are secured by pledges of
assets by the borrower and have other structural
aspects intended to provide greater protection to
the holders of Bank Loans than the holders of
unsecured and subordinated securities, there are
also additional risks in holding Bank Loans. In
particular, the secondary trading market for Bank
Loans is not very well developed, and therefore
Bank Loans present increased market risk relating
to liquidity and pricing concerns. In addition,
Bank Loans are subject to counterparty risk in
the event of default or insolvency of the other
party to the credit agreement. There is also no
assurance that the liquidation of the collateral
would satisfy the claims of the Borrower's
obligations in the event of the nonpayment of
scheduled interest or principal, or that the
collateral could be readily liquidated. As a
result, the Trust might not receive payments to
which it is entitled and therby may experience a
decline in the value of its investment and its
net asset value.
Mezzanine Investments. The Trust may invest up to
15% of its total assets in Mezzanine Investments.
Mezzanine Investments are typically subordinated
debt securities, are often unsecured by any
collateral and are often accompanied by warrants,
options and other rights to purchase equity of
the issuer. The issuer's ability to repay a
Mezzanine Investment often depends on the
issuer's ability to "refinance" or replace the
Mezzanine Investment with another income
security. Issuers of Mezzanine Investments often
are highly leveraged and may have difficulty in
refinancing. Therefore, Mezzanine Investments may
experience high default rates, which would mean
that the Trust may lose money on its Mezzanine
Investments which would adversely affect the
Trust's net asset value and level of
distributions. The rights to purchase equity
involve additional risks relating to the equity
portion of the investment. The purchase of rights
or warrants involves the risk that the Trust
could lose the purchase value of a right or
warrant if the right to subscribe to additional
shares is not exercised prior to the rights' and
warrants' expiration and the effective price paid
for the right or warrant added to the
subscription price of the related security may
exceed the value of the underlying security.
Collateralized Bond Obligations. The Trust may
invest up to 15% of its total assets in
collateralized bond obligations (or "CBOs").
Income from the pool of lower grade securities
collateralizing the obligations is typically
separated into tranches representing different
degrees of credit quality. The top tranche of
CBOs, which represents the highest credit quality
in the pool, has the greatest collateralization
and pays the lowest interest rate. Lower CBO
tranches represent lower degrees of credit
quality and pay higher interest rates to
compensate for the attendant risks. The bottom
tranche specifically receives the residual
interest payments (i.e. money that is left over
after the higher tiers have been paid) rather
than a fixed interest rate. The return on the
lower tranches of CBOs are especially sensitive
to the rate of defaults in the collateral pool,
which increases the risk of the Trust losing its
investment in lower CBO tranches.
Distressed Securities. The Trust may invest up to
10% of its total assets in Distressed Securities.
Investment in Distressed Securities is
speculative and involves significant risk,
including possible loss of the principal
invested. Although in current market conditions
the Trust expects that it will invest in
Distressed Securities that are producing current
income, at times, Distressed Securities may not
produce current income and may require the Trust
to bear certain extraordinary expenses in order
to protect and recover its investment. To the
extent the Trust pursues its secondary objective
of capital appreciation through investment in
Distressed Securities that do not produce current
income, the Trust will generally be less able to
achieve current income for its Shareholders.
Mortgage-Related and Asset-Backed Securities.
Although the Trust may invest in residential and
commercial mortgage-related and other
asset-backed securities issued by governmental
entities and private issuers, the Trust expects
that most of such investments will be limited to
CMBS, in which the Trust will not invest more
than 15% of its total assets. These securities do
entail considerable risk, i.e., credit risk,
fluctuations in quoted prices for such
securities, prepayment risk and interest rate
risk.
Risks Associated with Mortgage-Related
Securities. The risks associated with
mortgage-related securities include:
o Credit risks associated with the
performance of the underlying mortgage
properties and of the borrowers owning
these properties;
o Adverse changes in economic conditions and
circumstances are more likely to have an
adverse impact on mortgage-related
securities secured by loans on certain
types of commercial properties than on
those secured by loans on residential
properties;
o Prepayment risk can lead to significant
fluctuations in value of the mortgage-related
security; and
o Loss of all or part of the premium, if any,
paid if there is a decline in the market
value of the security, whether resulting
from changes in interest rates or
prepayments on the underlying mortgage
collateral.
Risks Associated with CMBS. The Trust's
investments in commercial mortgage-backed
securities (which are referred to as "CMBS") will
typically consist of CMBS which are subordinated
to more senior classes of such securities
("Subordinated CMBS"). Assets underlying CMBS may
relate to only a few properties or to a single
property. Because the commercial mortgage loans
that back a CMBS are generally not amortizing or
not fully amortizing, at their maturity date,
repayment of the remaining principal balance or
"balloon" is due and usually must be repaid
through the attainment of an additional loan or
sale of the property. If the commercial borrower
is unable to refinance or attain an additional
loan or the property is sold at below the
remaining principal amount of the mortgage, the
result could be a decline in the value, and thus
the price, of the related CMBS (which decline
could be greater in the case of a Subordinated
CMBS).
CMBS generally are structured to protect the
senior class investors against potential losses
on the underlying mortgage loans. This is
generally provided by having the Subordinated
CMBS take the first loss on any defaults on the
underlying commercial mortgage loans. In general,
Subordinated CMBS are entitled to receive
repayment of principal only after all required
principal payments have been made to more senior
classes and have subordinate rights as to receipt
of interest distributions. Such Subordinated CMBS
are subject to a substantially greater risk of
nonpayment than are senior classes of CMBS. Even
within a class of subordinated securities, most
CMBS are structured with a hierarchy of levels
(or "loss positions"). Loss positions are the
order in which non-recoverable losses of
principal are applied to the securities within a
given structure.
Foreign Securities. The Trust may invest up to
35% of its total assets in Foreign Securities,
which involves certain risks not involved in
domestic investments. Securities markets in
foreign countries are not as developed, efficient
or liquid as the United States markets.
Therefore, the prices of Foreign Securities often
are volatile. Although the Trust will report its
net asset value and pay dividends in U.S.
dollars, Foreign Securities often are purchased
with and make interest payments in foreign
currencies. Therefore, when the Trust invests in
Foreign Securities, it will be subject to foreign
currency risk, which means that the Trust's net
asset value could decline as a result of changes
in the exchange rates between foreign currencies
and the U.S. dollar. Certain foreign countries
may impose restrictions on the ability of issuers
of Foreign Securities to make payments of
principal and interest to investors located
outside the country, due to blockage of foreign
currency exchanges or otherwise. In addition, the
Trust will be subject to risks associated with
adverse political and economic developments in
foreign countries, which could cause the Trust to
lose money on its investments in Foreign
Securities. Typically, the Trust will not hold
any Foreign Securities of issuers in so-called
"emerging markets" (or lesser developed
countries), and in any case the Trust will not
invest more than 10% of its total assets in such
securities. Investments in such securities are
particularly speculative.
Leverage. Although the use of leverage by the
Trust may create an opportunity for increased net
income and capital appreciation for the Shares,
it also results in additional risks and can
magnify the effect of any losses. If the income
or gains earned on securities purchased with
leverage proceeds is greater than the cost of
leverage, the Trust's return will be greater than
if leverage had not been used. Conversely, if the
income or gains from the securities purchased
with such proceeds does not cover the cost of
leverage, the return to the Trust will be less
than if leverage had not been used. There is no
assurance that a leveraging strategy will be
successful. Leverage involves risks and special
considerations for Shareholders including:
o The likelihood of greater volatility of net
asset value and market price of the Shares
than a comparable portfolio without leverage;
o The risk that fluctuations in interest
rates on borrowings and short-term debt or
in the dividend rates on any preferred
stock that the Trust must pay will reduce
the return to the Shareholders;
o The effect of leverage in a declining
market, which is likely to cause a greater
decline in the net asset value of the
Shares than if the Trust were not
leveraged, which may result in a greater
decline in the market price of the Shares;
and
o When the Trust uses financial leverage, the
investment advisory fees payable to
BlackRock Advisors, Inc. will be higher
than if the Trust did not use leverage.
Any requirement that the Trust sell assets at a
loss in order to redeem or pay any leverage or
for other reasons would reduce the Trust's net
asset value and also make it difficult for the
net asset value to recover. BlackRock in its best
judgment nevertheless may determine to continue
to use leverage if it expects that the benefits
to the Trust's Shareholders of maintaining the
leveraged position will outweigh the current
reduced return.
Certain types of borrowings by the Trust may
result in the Trust being subject to covenants in
credit agreements relating to asset coverage and
Trust composition requirements. The Trust may be
subject to certain restrictions on investments
imposed by guidelines of one or more Rating
Agencies, which may issue ratings for the
short-term corporate debt securities or preferred
stock issued by the Trust. These guidelines may
impose asset coverage or Trust composition
requirements that are more stringent than those
imposed by the Investment Company Act of 1940, as
amended (the "Investment Company Act"). BlackRock
does not believe that these covenants or
guidelines will impede BlackRock for managing the
Trust's portfolio in accordance with the Trust's
investment objectives and policies.
Other Investment Management Techniques. The Trust
may use various other investment management
techniques that also involve certain risks and
special considerations, including engaging in
hedging and risk management transactions (which
we refer to as "Strategic Transactions")
including interest rate and foreign currency
transactions, options, futures, swaps and other
derivatives transactions. Strategic Transactions
will be entered into to seek to manage the risks
of the Trust's portfolio of securities, but may
have the effect of limiting the gains from
favorable market movements. Strategic
Transactions involve risks, including (i) that
the loss on the Strategic Transaction position
may be larger than the gain in the portfolio
position being hedged and (ii) that the
derivative instruments used in Strategic
Transactions may not be liquid and may require
the Trust to pay additional amounts of money.
Successful use of Strategic Transactions depends
on BlackRock's ability to predict correctly
market movements which, of course, cannot be
assured. Losses on Strategic Transactions may
reduce the Trust's net asset value and its
ability to pay dividends if they are not offset
by gains on the portfolio positions being hedged.
The Trust may also lend the securities it owns to
others, which allows the Trust the opportunity to
earn additional income. Although the Trust will
require the borrower of the securities to post
collateral for the loan and the terms of the loan
will require that the Trust be able to reacquire
the loaned securities if certain events occur,
the Trust is still subject to the risk that the
borrower of the securities may default, which
could result in the Trust losing money, which
would result in a decline in the Trust's net
asset value. The Trust may also purchase
securities for delayed settlement. This means
that the Trust is generally obligated to purchase
the securities at a future date for a set
purchase price, regardless of whether the value
of the securities is more or less than the
purchase price at the time of settlement.
Market Price, Discount and Net Asset Value of
Shares. Whether investors will realize gains or
losses upon the sale of Shares will not depend
directly upon the Trust's net asset value, but
will depend upon the market price of the Shares
at the time of sale. Since the market price of
the Shares will be affected by such factors as
the relative demand for and supply of the Shares
in the market, general market and economic
conditions and other factors beyond the control
of the Trust, the Trust cannot predict whether
the Shares will trade at, below or above net
asset value or at, below or above the public
offering price. Shares of closed-end funds often
have traded at a discount from their net asset
values and the Trust's Shares may trade at such a
discount. This risk may be greater for investors
expecting to sell their Shares of the Trust soon
after completion of the public offering. The
Shares are designed primarily for long-term
investors, and investors in the Shares should not
view the Trust as a vehicle for trading purposes.
See "Risk Factors and Special Considerations" and
"Description of Shares."
Anti-Takeover Provisions. The Trust's Agreement
and Declaration of Trust (the "Trust Agreement")
contains provisions limiting (i) the ability of
other entities or persons to acquire control of
the Trust, (ii) the Trust's freedom to engage in
certain transactions, and (iii) the ability of
the Trust's Board of Trustees or Shareholders to
amend the Trust Agreement. These provisions of
the Trust Agreement may be regarded as
"anti-takeover" provisions. These provisions
could have the effect of depriving the
Shareholders of opportunities to sell their
shares at a premium over prevailing market prices
by discouraging a third party from seeking to
obtain control of the Trust in a tender offer or
similar transaction. See "Investment Objectives
and Policies," "Risk Factors and Special
Considerations" and "Description of Shares."
Year 2000 Risks. Like other investment companies,
financial and business organizations and
individuals around the world, the Trust could be
adversely affected if the computer systems used
by BlackRock and the Trust's other service
providers do not properly process and calculate
date-related information and data from and after
January 1, 2000. This is commonly known as the
"Year 2000 Issue." BlackRock is taking steps to
address the Year 2000 Issue with respect to the
computer systems that it uses and to obtain
assurances that comparable steps are being taken
by the Trust's other major service providers. At
this time, however, we cannot give any assurance
that these steps will be sufficient to avoid any
adverse impact on the Trust.
Terms of the Offering General. In connection with the scheduled
liquidation of The BlackRock 1998 Term Trust Inc.
("BBT") around December 31, 1998, the Trust is
offering to the holders of record of common
shares of BBT (the "BBT Shares") as of the close
of business on November 12, 1998 (the "Record
Date") the right to request to subscribe for
Shares of the Trust. BBT has announced that it
will liquidate its portfolio of securities and
will distribute substantially all of the proceeds
from this liquidation (the "Liquidating
Distribution") to the holders of BBT Shares of
record as of the close of business on December
17, 1998. Record Date holders of BBT Shares who
exercise their right to request to subscribe for
Shares may direct that all or a portion of their
Liquidating Distribution be credited to the
account through which they will purchase the
Shares. If you do not subscribe for Shares of the
Trust, you will still receive your full
Liquidating Distribution. See "Payment for
Shares."
The Trust is also offering the right to request
to subscribe for Shares to Record Date holders of
common shares of the other closed-end investment
companies for which BlackRock acts as investment
adviser (together with BBT, the "BlackRock
Trusts"). Record Date holders of common shares
(the "BlackRock Trust Shares") of the BlackRock
Trusts are referred to as the "Eligible
Shareholders."
Subscription Privilege of Eligible Shareholders.
Eligible Shareholders may request to subscribe
for Shares at a rate of one Share for each
BlackRock Trust Share held on the Record Date
(the "Subscription Privilege") and may also
request to subscribe for any amount of additional
Shares. Eligible Shareholders should carefully
read this Prospectus, including the section
titled "Risk Factors and Special Considerations,"
and should consult with their broker to determine
whether the Shares are a suitable investment.
Subscription Price; Minimum Purchase. The
Subscription Price for the Shares is $15.00 per
Share. BlackRock Advisors, Inc. or an affiliate
(not the Trust or its investors) will pay the
sales load or underwriting commissions from its
own assets to the Underwriters and other
broker-dealers and financial institutions
participating in the Offering ("Participating
Institutions") in connection with sales of
Shares. The minimum purchase is 100 shares
($1,500). Holders of fewer than 100 BlackRock
Trust Shares may request to purchase 100 Shares
pursuant to the Subscription Privilege and may
request to subscribe for additional Shares.
Minimum Offering Amount. The Board of Trustees of
the Trust has determined not to consummate the
Offering unless a sufficient number of orders to
purchase Shares in the Offering (the "Minimum
Offering Amount") are received such that the
Board of Trustees determines, in its sole
discretion, that the Trust could commence
operations with an expense ratio approximating
that estimated in this Prospectus. In connection
with seeking to achieve the Minimum Offering
Amount, the Trust may offer the opportunity to
request to subscribe for Shares of the Trust at
the Subscription Price to employees and customers
of the BlackRock and its affiliates who may not
be Eligible Shareholders.
Expiration Date and Pricing Date. Any Record Date
Eligible Shareholder that wishes to request to
subscribe for Shares pursuant to the Subscription
Privilege must do so by 5:00 p.m., New York City
time, on December 16, 1998 (the "Subscription
Privilege Expiration Date"). Exercises of
Subscription Privileges will be processed
December 17, 1998 (the "Pricing Date").
Non-Transferability. The rights to participate in
the Subscription Privilege are non-transferable
and, therefore, may not be purchased or sold.
Methods of Subscription. Shares may be purchased
in the Offering, only through the Underwriters or
other Participating Institutions.
o If you are an Eligible Shareholder who
holds your BlackRock Trust Shares with or through
one of the Underwriters or other Participating
Institutions, you may contact your broker or
financial adviser, who may deem this type of
investment to be inappropriate for your risk
profile, through which you can request to
subscribe for Shares.
o If you are an Eligible Shareholder who
holds your BlackRock Trust Shares with or through
a broker-dealer or financial institution that is
not one of the Underwriters or other
Participating Institutions, you should contact
[BlackRock] at the address and telephone number
listed below to arrange for an account to be
established through which you can request to
subscribe for Shares,
[BlackRock Financial Management]
[345 Park Avenue]
[New York, New York]
[800- - ]
Payment for Shares. Payment for Shares requested
to be subscribed for must be made by December 23,
1998 (the "Settlement Date") to the Underwriters
or other Participating Institution through which
you subscribe for Shares. Record Date holders of
BBT Shares who exercise their right to request to
subscribe for Shares may direct that all or a
portion of their Liquidating Distribution be
credited to the account through which they will
purchase the Shares. Although the Liquidating
Distribution is expected to be made before the
Settlement Date, each Shareholder is responsible
for payment of the Subscription Price for the
Shares to which they subscribe in the Offering.
In the event the Offering is not consummated for
any reason, BBT Shareholders who requested to
subscribe for Shares will be paid their Liquidating
Distribution in accordance with the terms of the
plan of liquidation of BBT.
Important Dates to Remember
Record Date..................................................November 12, 1998
Subscription Period........................November, 1998 to December 17, 1998
Final BBT Trading Date.......................................December 14, 1998
Subscription Privilege Expiration Date.......................December 17, 1998
Pricing Date.................................................December 17, 1998
First Trading Date...........................................December 18, 1998
Settlement/Payment Date(1)...................................December 23, 1998
(1) Some Participating Institutions may request payment by investors at an
earlier date prior to the Settlement/Payment to the Trust Date.
TRUST EXPENSES
The following tables are intended to assist investors in
understanding the various costs and expenses that an investor in the Trust
will bear, directly or indirectly.
Assuming
33 1/3 %
Leverage
---------
Shareholder Transaction Expenses
Sales Load and Underwriting Commissions
(as a Percentage of Offering Price).....................................None
Dividend Reinvestment Plan Fees...........................................None
Annual Trust Operating Expenses (as a Percentage of Net Assets
Attributable to Shares)(1)
Management Fee...........................................................1.58%
Administration Fees......................................................0.15%
Interest Payments on Borrowed Funds......................................2.80%
Other Expenses(2)........................................................0.13%
-----
Total Annual Trust Expenses........................................4.66%
=====
- ---------
(1) The Trust intends to use leverage only if BlackRock believes that it
would result in higher income to Shareholders over time. See "Other
Investment Policies-Leverage" and "Risk Factors and Special
Considerations-Leverage." The table above assumes borrowings of
33 1/3% of total assets (including the amount borrowed) at an
annualized interest rate of 5.60%, which is based upon the Trust's
estimation of current market conditions. The actual rate could be
higher or lower. At times when the Trust does not use leverage, the
estimated annual operating expenses would be:
Assuming
No
Leverage
--------
Management Fee......................................1.05%
Administration Fees.................................0.10%
Interest Payments on Borrowed Funds..................None
Other Expenses(2)...................................0.15%
-----
Total Annual Trust Expenses.............1.30%
=====
(2) Reflects estimated amounts for the Trust's first year of operations.
Example
The following Example demonstrates the projected dollar amount of
total cumulative expense that would be incurred over various periods with
respect to a hypothetical investment in the Trust. These amounts are based
upon payment by the Trust of operating expenses at the levels set forth in
the above table. An investor would directly or indirectly pay the following
expenses on a $1,000 investment in the Trust, assuming (i) total annual
expenses of 1.30% (assuming no leverage) and 4.66% (assuming leverage of
33 1/3% of the Trust's total assets) and (ii) a 5% annual return throughout
the periods and reinvestment of all dividends and other distributions at
net asset value:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Assuming No Leverage.............[$14] [$43] [$74] [$162]
Assuming 33 1/3% Leverage.........$47 $141 $235 $474
This Example assumes that the percentage amounts listed under Total
Annual Expenses remain the same in the years shown. The above tables and
the assumption in the Example of a 5% annual return and reinvestment at net
asset value are required by regulation of the Securities and Exchange
Commission ("SEC") applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected
or actual performance of the Shares. Actual expenses and annual rates of
return may be more or less than those assumed for purposes of the Example.
In addition, although the Example assumes reinvestment of all dividends and
other distributions at net asset value, participants in the Trust's
Automatic Dividend Reinvestment Plan may receive Shares obtained by the
Plan Agent at or based on the market price in effect at that time, which
may be at, above or below net asset value.
This Example should not be considered a representation of future
expenses, and the Trust's actual expenses may be more or less than those
shown.
THE TRUST
The BlackRock High Yield Trust (the "Trust") is registered under the
Investment Company Act as a diversified, closed-end management investment
company. The Trust was organized as a business trust under the laws of
Delaware on August 10, 1998 and has no operating history. The Trust's
principal office is located at 345 Park Avenue, New York, New York 10154,
and its telephone number is 1-800-227-7236. BlackRock Advisors, Inc. is the
Trust's investment adviser. BlackRock Advisors, Inc. has entered into a
sub-advisory agreement with its wholly-owned subsidiary, BlackRock
Financial Management, Inc. ("BlackRock"), pursuant to which the
responsibilities of managing the Trust's portfolio on a daily basis have
been delegated to BlackRock. See "Management of the Trust." As an
investment in the Trust has certain risk considerations, you should consult
your broker-dealer, who may deem this type of investment to be
inappropriate for your risk profile, when making your investment decision.
The Trust is offering its shares of beneficial interest, par value
$.001 per share (the "Shares") in its initial public offering (the
"Offering") as described in this Prospectus. By this Prospectus, we are
offering Shares of the Trust at a subscription price of $15.00 per Share.
BlackRock Advisors, Inc. or one of its affiliates (not the Trust or its
investors) will pay the sales load or underwriting commission on the Shares
you buy from its own assets to the Underwriters or Participating
Institutions in this offering equal to ____% of the Subscription Price per
Share. The right to request to subscribe for Shares is being offered to
investors who hold shares of The BlackRock 1998 Term Trust Inc. as of the
close of business on November 12, 1998. The BlackRock 1998 Term Trust is
scheduled to liquidate around December 31, 1998 and, in connection with
this Offering, holders of shares of The BlackRock 1998 Term Trust may use
all or a portion of their distribution from the liquidation of The
BlackRock 1998 Term Trust to purchase Shares of the Trust. We are also
offering the right to request to subscribe for Shares to those investors
who are shareholders, as of November 12, 1998, of the other closed-end
funds managed by BlackRock. A description of how to purchase and pay for
Shares of the Trust in this Offering can be found under the heading "Terms
of the Offering" on page __ of this Prospectus. The minimum amount of
Shares you can buy in the Offering is 100 Shares (or $1,500).
USE OF PROCEEDS
The net proceeds of the Trust from this Offering are approximately
- ---------- (---------- if the Underwriters' over-allotment option is
exercised in full) after deducting organizational and estimated offering
expenses. The net proceeds will be invested in accordance with the Trust's
investment objectives and policies during a period not to exceed [six]
months from the closing of this Offering. Pending such investment, the net
proceeds may be invested in high quality, short-term debt securities.
BlackRock Advisors, Inc. or one of its affiliates will pay all offering
expenses of the Trust that exceed $0.02 per Share.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Trust's primary investment objective is to seek high current
income. The Trust will also seek capital appreciation as a secondary
objective, to the extent consistent with its primary objective of seeking
high current income. The Trust is designed for investors willing to assume
additional risk in return for the potential for high current income and for
capital appreciation. Some of the Trust's strategies will result in an
above average amount of risk and volatility and may increase your risk of
loss in your investment in the Trust. The Trust is not intended to be a
complete investment program and there is no assurance that the Trust will
achieve its objectives. The Trust's investment objectives cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act) of the Trust's outstanding voting shares.
Investment Policies
Under normal market conditions, at least 80% of the total assets of
the Trust will be invested in high-risk, high-yield income bonds and other
income securities, including preferred stocks, which are rated in the lower
rating categories of the established rating services (Ba or lower by
Moody's Investors Service, Inc. ("Moody's"), BB or lower by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or similarly
rated by any other nationally recognized securities rating organization
(each, a "Rating Agency")), or in unrated income securities that BlackRock
determines to be of comparable quality. Securities rated Baa/BBB and higher
are described as "investment grade," while lower grade securities (those
with ratings lower than Baa/BBB or unrated securities of similar quality)
are classified as "non-investment grade" or "junk bonds." The Trust may
invest up to 25% of its total assets in loans extended to corporate
borrowers by commercial banks or other financial institutions ("Bank
Loans"). The Trust may invest up to 15% of its total assets in securities
known as "Mezzanine Investments," which are generally subordinated,
privately placed debt securities issued with attached equity securities.
The Trust may invest up to 15% of its total assets in collateralized bond
obligations ("CBOs") which are structured securities backed by a pool of
income securities. The Trust may also invest up to 10% of its total assets
in securities that are the subject of bankruptcy proceedings or otherwise
in default or in significant risk of being in default ("Distressed
Securities"). Lower grade securities in which the Trust may invest include
mortgage-related securities, which are structured securities of mortgage
loans on residential and commercial properties. The Trust will not invest
more than 15% of its total assets in commercial mortgage-backed securities.
Additionally, the Trust may invest up to 30% of its total assets in
stripped and zero coupon securities, pay-in-kind bonds and deferred payment
securities. The Trust may invest up to 35% of its total assets in debt
securities of issuers domiciled outside of the United States or that are
denominated in various foreign currencies and multinational currency units
("Foreign Securities"). Typically, the Trust will not hold any Foreign
Securities of emerging market issuers, and in any case such securities will
not comprise more than 10% of the Trust's net assets. Up to 20% of the
Trust's total assets may be invested in equity securities other than
preferred stocks. The foregoing percentages are as of the time of
investment by the Trust and could thereafter be exceeded as a result of
market value fluctuations of the Trust's portfolio.
In selecting income securities for the Trust's portfolio, BlackRock
will seek to identify issuers and industries that BlackRock believes are
likely to experience stable or improving financial conditions. BlackRock
believes that this strategy should enhance the Trust's ability to earn high
current income and provide opportunities for capital appreciation.
BlackRock's analysis may include consideration of general industry trends,
the issuer's managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its responsiveness to changes
in business conditions and interest rates. BlackRock may also consider
relative values based on anticipated cash flow, interest or dividend
coverage, asset coverage, capital structures and earnings prospects. In
managing the assets of the Trust, BlackRock will utilize an active
management approach that stresses the flexibility to reallocate investments
as appropriate. BlackRock will diversify the Trust's portfolio of assets in
an effort to minimize exposure to individual securities, issuers and
industries. Although it does not intend to do so to any significant degree,
BlackRock may also use advanced and proprietary hedging and risk management
techniques for the Trust. See "Other Investment Practices-Strategic
Transactions" and "Risk Factors and Special Considerations-Other Investment
Management Techniques."
The Trust expects to utilize financial leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred
shares or through other transactions, such as reverse repurchase
agreements, which have the effect of financial leverage. The Trust intends
to utilize financial leverage in an initial amount equal to approximately
33 1/3% of its total assets (including the amount obtained through
leverage). The Trust generally will not utilize leverage if it anticipates
that the Trust's leveraged capital structure would result in a lower return
to Shareholders than that obtainable over time with an unleveraged capital
structure. Use of financial leverage creates an opportunity for increased
income and capital appreciation for the Shareholders but, at the same time,
creates special risks and there can be no assurance that a leveraging
strategy will be successful during any period in which it is employed. See
"Other Investment Practices-Leverage" and "Risk Factors and Special
Considerations-Leverage."
In certain market conditions, BlackRock may determine that income
securities rated investment grade (i.e., at least Baa by Moody's or BBB by
S&P or comparably rated by another Rating Agency) or U.S. Government
Obligations offer significant opportunities for high income and capital
appreciation. In such conditions, the Trust may invest less than 80% of its
total assets in lower grade income securities of U.S. issuers. In addition,
the Trust may implement various temporary "defensive" strategies at times
when BlackRock determines that conditions in the markets make pursuing the
Trust's basic investment strategy inconsistent with the best interests of
its Shareholders. These strategies may include investing all or a portion
of the Trust's assets in higher-quality debt securities.
The Trust will invest primarily in bonds, debentures, notes and other
debt or income instruments, including preferred stocks. The Trust's
portfolio securities may have fixed or variable rates of interest, and may
include convertible debt obligations and convertible preferred stock,
warrant and equity shares, mortgage-related securities, asset-backed
securities, Bank Loans, Mezzanine Investments, government securities, CBOs,
Distressed Securities, zero-coupon securities, pay-in-kind bonds and
deferred payment securities. The issuers of the Trust's portfolio
securities may include domestic and foreign corporations, partnerships,
trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Trust may invest in
securities of any maturity. In connection with its investments in corporate
debt securities, or restructuring of investments owned by the Trust, the
Trust may receive warrants or other non-income producing equity securities.
The Trust may retain such securities, including equity shares received upon
conversion of convertible securities, until BlackRock determines it is
appropriate in light of current market conditions to effect a disposition
of such securities.
Statistical Information Regarding Lower Grade Securities
The following table presents annualized compound total return for
various fixed income benchmarks for the years 1991 to 1998.
Annualized Compound Total Return
1991 through November 3, 1998
Merrill Lynch High Yield Master II Index (1)...........................14.14%
Merrill Lynch U.S. Treasuries/Agencies Index, 10+ Years (2)............11.26%
Merrill Lynch U.S. Corporate Master Index (3)...........................9.63%
Merrill Lynch U.S. Treasuries/Agencies Incex, 1-10 Years (4)........... 7.78%
Merrill Lynch U.S. 3-Month Treasury Bill Index (5).....................4.95%
- --------------
(1) The Merrill Lynch High Yield Master II Index is an unmanaged index of
U.S. bonds and U.S. dollar-denominated bonds of non-U.S. issuers, in
each case with at least $100 million face value outstanding, with a
maturity equal to or greater than one year and rated by S&P in the
categories below "BBB-" and generally rated by Moody's in the
categories below "Baa3" but not in default.
(2) The Merrill Lynch U.S. Treasuries/Agencies Index 10+ Years is an
unmanaged index of all U.S. treasury notes and bonds with at least
1 billion face value outstanding and with a maturity greater than
or equal to ten years.
(3) The Merrill Lynch U.S. Corporate Master Index (All Maturities) is an
unmanaged index of fixed-coupon U.S. investment grade bonds with at
least $100 million face value outstanding generally with ratings of
at least "Baa3" and "BBB-" based on Moody's and S&P ratings
respectively.
(4) The Merrill Lynch U.S. Treasuries/Agencies Index 1-10 Years is an
unmanaged index of all U.S. treasury notes and bonds with at least
1 billion face value outstanding and with a maturity greater than
or equal to one year and less than ten years.
(5) The Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index
which, at the beginning of every month, is comprised of the U.S. Treasury
Bill with a maturity closest to, but not longer than, 3 months from
that date. It is assumed that this issue is held for one month, then
sold with the net proceeds reinvested in the bill selected at the
beginning of the next month.
There are differences between the securities that comprise the
indices shown above, particularly the Merrill Lynch High Yield Master II
Index, and the securities in which the Trust will invest. The indices are
unmanaged indices and no account charges, management fees or other expenses
are reflected in the indices. The Trust will not seek to match the
composition or performance of any such indices. The performance of the
various indices should not be viewed as indicative of the performance of
the Trust.
In addition, past performance is no guarantee of future performance.
The statistical information described above reflects a comparison of the
annualized compound total return percentages of various asset classes as
represented by their respective indices for the period from January 1991
through November 3, 1998. The statistical information described above does
not reflect the past or future performance of the Trust. An investor cannot
invest directly in an index. Lower grade income securities are subject to
greater risks and uncertainties than other securities set forth in the
statistical information described above, including U.S. Treasury securities
which are guaranteed as to the payment of principal and interest by the
U.S. Government.
BlackRock believes that the credit quality of outstanding U.S. lower
grade securities has improved over the last eight years. For example, the
default loss rates (defined as the percentage of lower grade bonds) which
missed any scheduled interest or principal payments (in that year, net of
any recovery)) for U.S. lower grade bonds by year for the years 1990
through 1997 were as follows:
Default Loss Rates (1)
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
9.81% 10.63% 4.84% 3.51% 1.93% 3.20% 1.64% 1.82%
(1) Defined as the number of issuers of bonds who have defaulted as
a percentage of the number of issuers that were at risk of defaulting.
The statistical information with respect to historical default loss
rates is based on information contained in Moody's Default Rates on Lower
Grade Income Securities, and is intended to demonstrate default loss-rate
trends over the period indicated. It should not be viewed as a definitive
indication of the relative magnitude of changes in credit quality from year
to year and is not a prediction of future rates of default. Although other
methods of analyzing default experience, such as comparing default
experience of seasoned issues, would produce different relative figures,
BlackRock believes that the foregoing default loss-rate data evidence a
general trend of improving credit quality.
For the period January 1, 1989 through December 31, 1997, the
cumulative gross default rate for lower grade bonds was 38.34%. This figure
represents the probability that a high yield bond outstanding on January 1,
1989 would default by December 31, 1997 and does not take into account any
recovery of lost principal or interest. The rate is based on the ratio of
the number of issuers that defaulted on high yield bonds outstanding on
January 1, 1989 to the number of issuers at risk of defaulting on such
bonds as of such date and is based only on bonds that have been rated by
Moody's. The foregoing is derived from information obtained by the Trust
from the February 1998 issue of a Moody's publication entitled "Historical
Default Rates of Corporate Bond Issuers, 1920-1997."
The market of outstanding high yield securities has generally
increased since 1977. The aggregate outstanding principal amount of high
yield securities was as follows:
Principal Amount of Lower Grade Securities
($ in billions)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$207.3 $244.2 $214.6 $200.9 $199.6 $233.6 $271.5 $296.9 $352.7 $452.3
Source: Chase Securities, Inc.
High Yield Market Investment Opportunity
BlackRock believes that the high yield market has recently
experienced a significant widening in quality spreads, returning spreads to
levels not seen since the early 1990s. Although some degree of this
widening can be attributed to a potential deterioration in credit
fundamentals due to weakening global economics, BlackRock believes that a
large factor in the widening is technically driven, thereby creating a
significant investment opportunity. From a fundamental perspective,
BlackRock believes the environment in the early 1990s was markedly
different than today. First, default rates, which greatly influence credit
spreads, have sharply declined over the decade, and BlackRock believes that
the underlying credit strength of the domestic high yield market remains
sound, even with a potential slowdown in the U.S. economy. Second,
BlackRock believes that the composition of the high yield market has
changed as the quality and diversity of the high yield issues have
improved, creating some cushion to withstand economic downturns. Finally,
during the early 1990s, uncertainty in the high yield market increased with
the default of a significant market participant and as other investment
banks lessened their participation in the market. These factors contributed
to a widening of credit spreads at that time. BlackRock believes that the
current market widening of spreads, to levels comparable to those of the
early 1990s, over-compensates investors relative to the risks underlying
the high yield market today. Specifically, credit spreads have widened
across all rating categories and industry sectors, creating a broad range
of market opportunities. In short, BlackRock believes that the relative
risks and returns available in the current high yield market have improved
significantly from prior market conditions. See "Risk Factors and Special
Considerations" for factors you should consider in connection with an
investment in the Shares of the Trust.
Portfolio Securities
Lower Grade Securities. The Trust generally will invest in securities
rated below investment grade such as those rated Ba or lower by Moody's and
BB or lower by S&P or securities comparably rated by other Rating Agencies
or in unrated securities determined by BlackRock to be of comparable
quality. Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Securities rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term
vulnerability to default than other speculative grade debt, they face major
ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. Securities rated C by Moody's are regarded
as having extremely poor prospects of ever attaining any real investment
standing. Securities rated D by S&P are in default and the payment of
interest and/or repayment of principal is in arrears. See "Appendix
A-Description of Corporate Bond Ratings" for additional information
concerning rating categories.
Lower grade securities, though high yielding, are characterized by
high risk. They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding,
higher rated securities. The retail secondary market for lower grade
securities may be less liquid than that of higher rated securities; adverse
conditions could make it difficult at times for the Trust to sell certain
securities or could result in lower prices than those used in calculating
the Trust's net asset value.
The prices of debt securities generally are inversely related to
interest rate changes; however, the price volatility caused by fluctuating
interest rates of securities also is inversely related to the coupon of
such securities. Accordingly, below investment grade securities may be
relatively less sensitive to interest rate changes than higher quality
securities of comparable maturity, because of their higher coupon. This
higher coupon is what the investor receives in return for bearing greater
credit risk. The higher credit risk associated with below investment grade
securities potentially can have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity, and will be a substantial factor in the Trust's relative Share
price volatility.
Lower grade securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely
the market for such securities and may have an adverse impact on the value
of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and increase the
incidence of default for such securities.
The ratings of Moody's, S&P and the other Rating Agencies represent
their opinions as to the quality of the obligations which they undertake to
rate. Ratings are relative and subjective and, although ratings may be
useful in evaluating the safety of interest and principal payments, they do
not evaluate the market value risk of such obligations. Although these
ratings may be an initial criterion for selection of portfolio investments,
BlackRock also will independently evaluate these securities and the ability
of the issuers of such securities to pay interest and principal. To the
extent that the Trust invests in lower grade securities that have not been
rated by a Rating Agency, the Trust's ability to achieve its investment
objective will be more dependent on BlackRock's credit analysis than would
be the case when the Trust invests in rated securities.
Zero-Coupon, Pay-in-Kind and Deferred Payment Securities. The Trust
may invest up to 30% of its total assets in zero-coupon, pay-in-kind or
deferred payment lower grade securities. Zero-coupon securities are
securities that are sold at a discount to par value and on which interest
payments are not made during the life of the security. Upon maturity, the
holder is entitled to receive the par value of the security. While interest
payments are not made on such securities, holders of such securities are
required each year, for federal income tax purposes, to accrue income with
respect to these securities as if it were actually received. Because the
Trust must distribute this non-cash income to Shareholders, to the extent
that Shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares the Trust may have to sell
portfolio securities to generate cash for distribution and, in such event,
the Trust would have fewer assets with which to purchase income producing
securities. The Trust accrues income with respect to these securities prior
to the receipt of cash payments. Pay-in-kind securities are securities that
have interest payable by delivery of additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the
securities. Deferred payment securities are securities that remain zero-
coupon securities until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular
intervals. Zero-coupon, pay-in-kind and deferred payment securities are
subject to greater fluctuation in value and may have lesser liquidity in
the event of adverse market conditions than comparably rated securities
paying cash interest at regular interest payment periods.
Bank Loans. The Trust may invest up to 25% of its total assets in
Bank Loans denominated in U.S. and foreign currencies that are originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders")
consisting of commercial banks, thrift institutions, insurance companies,
financial companies or other financial institutions one or more of which
administers the security on behalf of the syndicate (the "Agent Bank").
Co-Lenders may sell such securities to third parties called "Participants."
The Trust may invest in such securities either by participating as a
Co-Lender at origination or by acquiring an interest in the security from a
Co-Lender or a Participant (collectively, "Participation Interests").
Co-Lenders and Participants interposed between the Trust and the corporate
borrower (the "Borrower"), together with Agent Banks, are referred herein
as "Intermediate Participants." The Trust also may purchase a participation
interest in a portion of the rights of an Intermediate Participant, which
would not establish any direct relationship between the Trust and the
Borrower. In such cases, the Trust would be required to rely on the
Intermediate Participant that sold the participation interest not only for
the enforcement of the Trust's rights against the Borrower but also for the
receipt and processing of payments due to the Trust under the security.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower
fails to pay principal and interest when due, the Trust may be subject to
delays, expenses and risks that are greater than those that would be
involved if the Trust would enforce its rights directly against the
Borrower. Moreover, under the terms of a Participation Interest, the Trust
may be regarded as a creditor of the Intermediate Participant (rather than
of the Borrower), so that the Trust may also be subject to the risk that
the Intermediate Participant may become insolvent. Similar risks may arise
with respect to the Agent Bank if, for example, assets held by the Agent
Bank for the benefit of the Trust were determined by the appropriate
regulatory authority or court to be subject to the claims of the Agent
Bank's creditors. In such case, the Trust might incur certain costs and
delays in realizing payment in connection with the Participation Interest
or suffer a loss of principal and/or interest. Further, in the event of the
bankruptcy or insolvency of the Borrower, the obligation of the Borrower to
repay the loan may be subject to certain defenses that can be asserted by
such Borrower as a result of improper conduct by the Agent Bank or
Intermediate Participant.
Mezzanine Investments. The Trust may invest up to 15% of its total
assets in certain lower grade securities known as "Mezzanine Investments,"
which are subordinated debt securities which are generally issued in
private placements in connection with an equity security (e.g., with
attached warrants) or may be convertible into equity securities. Mezzanine
Investments may be issued with or without registration rights. Similar to
other lower grade securities, maturities of Mezzanine Investments are
typically seven to ten years, but the expected average life is
significantly shorter at three to five years. Mezzanine Investments are
usually unsecured and subordinated to other obligations of the issuer.
In connection with its purchase of Mezzanine Investments, the Trust
may participate in rights offerings and may purchase warrants, which are
privileges issued by corporations enabling the owners to subscribe and
purchase a specified number of shares of the corporation at a specified
price during a specified period of time. Subscription rights normally have
a short life span to expiration. The purchase of rights or warrants
involves the risk that the Trust could lose the purchase value of a right
or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' and warrants' expiration. Also, the purchase of rights
and/or warrants involves the risk that the effective price paid for the
right and/or warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
Collateralized Bond Obligations. The Trust may invest up to 15% of
its total assets in collateralized bond obligations ("CBOs"), which are
structured products backed by a diversified pool of high yield, public or
private fixed income securities. These may be fixed pools or may be "market
value" or managed pools of collateral. The pool of high yield securities is
typically separated into tranches representing different degrees of credit
quality. The top tranche of CBOs, which represents the highest credit
quality in the pool, has the greatest collateralization and pays the lowest
interest rate. Lower CBO tranches represent lower degrees of credit quality
and pay higher interest rates to compensate for the attendant risks. The
bottom tranche specifically receives the residual interest payments (i.e.
money that is left over after the higher tranches have been paid) rather
than a fixed interest rate. The return on the lower tranches of CBOs is
especially sensitive to the rate of defaults in the collateral pool. Under
normal market conditions, the Trust expects to invest in the lower tranches
of CBOs.
Distressed Securities. The Trust may invest up to 10% of its total
assets in Distressed Securities. Investment in Distressed Securities is
speculative and involves significant risk, including possible loss of the
principal invested. Distressed Securities may be performing or
non-performing and generally trade at prices substantially lower than lower
grade securities of companies in similar industries. Under normal market
conditions, the Trust intends to invest in Distressed Securities that are
producing current income. At times, Distressed Securities may not produce
income and may require the Trust to bear certain extraordinary expenses
(including legal, accounting, valuation and transaction expenses) in order
to protect and recover its investment. Therefore, to the extent the Trust
invests in Distressed Securities, the Trust's ability to achieve current
income for its Shareholders may be diminished. The Trust also will be
subject to significant uncertainty as to when and in what manner and for
what value the obligations evidenced by the Distressed Securities will
eventually be satisfied (e.g., through a liquidation of the obligor's
assets, an exchange offer or plan of reorganization involving the
Distressed Securities or a payment of some amount in satisfaction of the
obligation). In addition, even if an exchange offer is made or plan of
reorganization is adopted with respect to Distressed Securities held by the
Trust, there can be no assurance that the securities or other assets
received by the Trust in connection with such exchange offer or plan or
reorganization will not have a lower value or income potential than may
have been anticipated when the investment was made. Moreover, any
securities received by the Trust upon completion of an exchange offer or
plan of reorganization may be restricted as to resale. As a result of the
Trust's participation in negotiations with respect to any exchange offer or
plan of reorganization with respect to an issuer of Distressed Securities,
the Trust may be restricted from disposing of such securities.
Mortgage-Related Securities. Mortgage-related securities are a form
of derivative collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations. These securities may include complex instruments such as
collateralized mortgage obligations, stripped mortgage-backed securities,
mortgage pass-through securities, interests in real estate mortgage
investment conduits ("REMICs"), adjustable rate mortgages, real estate
investment trusts ("REITs"), including debt and preferred stock issued by
REITs, as well as other real estate-related securities. The
mortgage-related securities in which the Trust may invest include those
with fixed, floating or variable interest rates, those with interest rates
that change based on multiples of changes in a specified index of interest
rates and those with interest rates that change inversely to changes in
interest rates, as well as those that do not bear interest. Although the
Trust may invest in residential and commercial mortgage-related securities
issued by governmental entities and private issuers, the Trust expects that
most of such investments will be limited to commercial mortgage-related
securities, in which the Trust will not invest more than 15% of its total
assets. See "Appendix C-Description of Mortgage-Related Securities" for
additional information concerning mortgage-related securities.
Commercial Mortgage-Related Securities. Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates
secured or backed by mortgage loans on commercial properties ("CMBS"). The
Trust may invest up to 15% of its total assets in CMBS. These CMBS
generally are structured to provide protection to the senior classes
investors against potential losses on the underlying mortgage loans. This
protection generally is provided by having the holders of subordinated
classes of securities ("Subordinated CMBS") take the first loss if there
are defaults on the underlying commercial mortgage loans. Other protection,
which may benefit all of the classes or particular classes, may include
issuer guarantees, reserve funds, additional Subordinated CMBS,
cross-collateralization and over-collateralization.
The Trust may invest in Subordinated CMBS issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers.
Subordinated CMBS have no governmental guarantee, and are subordinated in
some manner as to the payment of principal and/or interest to the holders
of more senior mortgage-related securities arising out of the same pool of
mortgages. The holders of Subordinated CMBS typically are compensated with
a higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated CMBS typically subject the
holder to greater risk than senior mortgage-related securities and tend to
be rated in a lower rating category, and frequently a substantially lower
rating category, than the senior mortgage-related securities issued in
respect of the same pool of mortgage. Subordinated CMBS generally are
likely to be more sensitive to changes in prepayment and interest rates and
the market for such securities may be less liquid than is the case for
traditional fixed-income securities and senior mortgage-related securities.
The market for CMBS developed more recently and in terms of total
outstanding principal amount of issues is relatively small compared to the
market for residential single-family mortgage-related securities. In
addition, commercial lending generally is viewed as exposing the lender to
a greater risk of loss than one-to-four family residential lending.
Commercial lending, for example, typically involves larger loans
to single borrowers or groups of related borrowers than residential
one-to-four family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on
mortgage-related securities secured by loans on commercial properties than
on those secured by loans on residential properties.
Asset-Backed Securities. Asset-backed securities are a form of
derivative securities. The securitization techniques used for asset-backed
securities are similar to those used for mortgage-related securities. The
collateral for these securities has included home equity loans, automobile
and credit card receivables, boat loans, computer leases, airplane leases,
mobile home loans, recreational vehicle loans and hospital account
receivables. The Trust may invest in these and other types of asset-backed
securities that may be developed in the future. Asset-backed securities
present certain risks that are not presented by mortgage-backed securities.
Primarily, these securities may provide the Trust with a less effective
security interest in the related collateral than do mortgage-backed
securities. Therefore, there is the possibility that recoveries on the
underlying collateral may not, in some cases, be available to support
payments on these securities.
Foreign Securities. The Trust may invest up to 35% of its total
assets in Foreign Securities, which may include debt securities issued by
foreign governments and other sovereign entities and debt securities issued
by foreign corporations. Under normal market conditions, the Trust will not
hold any Foreign Securities of emerging market issuers, and, in the event
the Trust decides to hold any such Foreign Securities of emerging market
issuers, such securities will not comprise more than 10% of the Trust's net
assets. Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of some foreign issuers
are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can
be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Trust will be subject to additional risks
which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect or restrict the payment of
principal and interest on the foreign securities to investors located
outside the country of the issuer, whether from currency blockage or
otherwise.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations.
Convertible Securities. The Trust may invest in convertible
securities, which are income securities that may, at the holder's option,
be converted into or exchanged for a prescribed amount of equity securities
of the same or a different issuer within a particular period of time.
Convertible securities may be converted at either a stated price or stated
rate into underlying shares of common stock. Convertible securities have
characteristics similar to both fixed-income and equity securities.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to shares of
common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value
of the underlying common stock. A unique feature of convertible securities
is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so
may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same
issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stock. There can
be no assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
Variable and Floating Rate Securities. Variable and floating rate
securities provide for a periodic adjustment in the interest rate paid on
the obligations. The terms of such obligations must provide that interest
rates are adjusted periodically based upon an interest rate adjustment
index as provided in the respective obligations. The adjustment intervals
may be regular, and range from daily up to annually, or may be event based,
such as based on a change in the prime rate.
The Trust may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Trust with
a certain degree of protection against rises in interest rates, although
the Trust will participate in any declines in interest rates as well. The
Trust also may invest in inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed or inversely to a multiple of the applicable index. An inverse
floating rate security may exhibit greater price volatility than a fixed
rate obligation of similar credit quality.
Stripped Securities. The Trust may invest in zero-coupon U.S.
Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such stripped securities also are issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A
stripped security pays no interest to its holder during its life and is
sold at a discount to its face value at maturity. The market prices of such
securities generally are more volatile than the market prices of securities
that pay interest periodically and are likely to respond to a greater
degree to changes in interest rates than coupon securities having similar
maturities and credit qualities.
U.S. Government Securities. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by the right of the issuer to borrow from the
Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others
only by the credit of the agency or instrumentality. These securities bear
fixed, floating or variable rates of interest. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so
since it is not so obligated by law.
Equity Securities. The Trust may invest up to 20% of its total assets
in common stock, warrants or other equity securities (other than preferred
stocks) of U.S. and foreign issuers when consistent with the Trust's
objectives. The Trust will generally, but not exclusively, hold such
investments as a result of purchases of unit offerings of debt securities
which include such securities or in connection with an actual or proposed
conversion or exchange of debt securities. The Trust may also purchase
equity securities not associated with debt securities when, in the opinion
of BlackRock, such purchase is appropriate.
OTHER INVESTMENT PRACTICES
The Trust may utilize other investment practices and portfolio
management techniques as set forth below.
Leverage
The Trust expects to utilize leverage through borrowings or issuance
of debt securities or preferred shares. The Trust intends to utilize
leverage in an initial amount equal to approximately 33 1/3% of its total
assets (including the amount obtained from leverage). The Trust generally
will not utilize leverage if it anticipates that the Trust's leveraged
capital structure would result in a lower return to Shareholders than that
obtainable if the Shares were unleveraged for any significant amount of
time. The use of leverage by the Trust creates an opportunity for increased
net income and capital appreciation for the Shares, but, at the same time,
creates special risks. The Trust also may borrow money as a temporary
measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise may
require untimely dispositions of portfolio securities. Subject to
applicable regulatory requirements, the Trust at times may borrow from
affiliates of BlackRock, provided that the terms of such borrowings are no
less favorable than those available from comparable sources of funds in the
marketplace.
The concept of leveraging is based on the premise that the cost of
the assets to be obtained from leverage will be based on short-term rates
which normally will be lower than the return earned by the Trust on its
longer term portfolio investments. Since the total assets of the Trust
(including the assets obtained from leverage) will be invested in the
higher yielding portfolio investments or portfolio investments with the
potential for capital appreciation, the holders of Shares will be the
beneficiaries of the incremental return. Should the differential between
the underlying assets and cost of leverage narrow, the incremental
return "pick up" will be reduced. Furthermore, if long-term rates rise, the
net asset value of the Shares will reflect the decline in the value of
portfolio holdings resulting therefrom.
Leverage creates risks for holders of the Shares, including the
likelihood of greater volatility of net asset value and market price of the
Shares, and the risk that fluctuations in interest rates on borrowings and
debt or in the dividend rates on any preferred stock may affect the return
to the holders of the Shares. To the extent the income or capital
appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Trust's return will be greater
than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return on the Trust will be
less than if leverage had not been used, and therefore the amount available
for distribution to Shareholders as dividends and other distributions will
be reduced. In the latter case, BlackRock in its best judgment nevertheless
may determine to maintain the Trust's leveraged position if it expects that
the benefits to the Trust's Shareholders of maintaining the leveraged
position will outweigh the current reduced return. As discussed under
"Management of the Trust," the fee paid to BlackRock will be calculated on
the basis of the Trust's assets including proceeds from borrowings for
leverage and the issuance of preferred stock. During periods in which the
Trust is utilizing financial leverage, the investment advisory fees payable
to BlackRock will be higher than if the Trust did not utilize a leveraged
capital structure.
Capital raised through leverage will be subject to interest costs or
dividend payments which may not exceed the income and capital appreciation
on the assets purchased. The Trust also may be required to maintain minimum
average balances in connection with borrowings or to pay a commitment or
other fee to maintain a line of credit; either of these requirements will
increase the cost of borrowing over the stated interest rate. The issuance
of additional classes of preferred stock involves offering expenses and
other costs and may limit the Trust's freedom to pay dividends on Shares or
to engage in other activities. Borrowings and the issuance of a class of
preferred stock having priority over the Trust's Shares create an
opportunity for greater return per Share, but at the same time such
borrowing is a speculative technique in that it will increase the Trust's
exposure to capital risk. Unless the income and capital appreciation, if
any, on assets acquired with borrowed funds or offering proceeds exceed the
cost of borrowing or issuing additional classes of securities, the use of
leverage will diminish the investment performance of the Trust compared
with what it would have been without leverage.
Certain types of borrowings may result in the Trust being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Trust may be subject to certain restrictions
on investments imposed by guidelines of one or more Rating Agencies, which
may issue ratings for the short-term corporate debt securities or preferred
stock issued by the Trust. These guidelines may impose asset coverage or
portfolio composition requirements that are more stringent than those
imposed by the Investment Company Act. It is not anticipated that these
covenants or guidelines will impede BlackRock from managing the Trust's
portfolio in accordance with the Trust's investment objectives and
policies.
Under the Investment Company Act, the Trust is not permitted to incur
indebtedness unless immediately after such incurrence the Trust has an
asset coverage of at least 300% of the aggregate outstanding principal
balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of
the Trust's total assets). Additionally, under the Investment Company Act,
the Trust may not declare any dividend or other distribution upon any class
of its capital shares, or purchase any such capital shares, unless the
aggregate indebtedness of the Trust has, at the time of the declaration of
any such dividend or distribution or at the time of any such purchase, an
asset coverage of at least 300% after deducting the amount of such
dividend, distribution, or purchase price, as the case may be. Under the
Investment Company Act, the Trust is not permitted to issue preferred
shares unless immediately after such issuance the net asset value of the
Trust's portfolio is at least 200% of the liquidation value of the
outstanding preferred shares (i.e., such liquidation value may not exceed
50% of the Trust's total assets). In addition, the Trust is not permitted
to declare any cash dividend or other distribution on its Shares unless, at
the time of such declaration, the net asset value of the Trust's portfolio
(determined after deducting the amount of such dividend or distribution) is
at least 200% of such liquidation value. In the event preferred shares are
issued, the Trust intends, to the extent possible, to purchase or redeem
preferred shares from time to time to maintain coverage of any preferred
shares of at least 200%. In addition, during any period when preferred
shares are outstanding, the Investment Company Act would require that two
of the Trust's Trustees be elected by holders of the preferred shares,
voting separately as a class, and that during any period in which the Trust
were in arrears in an amount equal to two full years' dividends on such
preferred shares, a majority of the Trust's Trustees be so elected.
The Trust's willingness to borrow money and issue new securities for
investment purposes, and the amount the Trust will borrow or issue, will
depend on many factors, the most important of which are investment outlook,
market conditions and interest rates. Successful use of a leveraging
strategy depends on BlackRock's ability to predict correctly interest rates
and market movements, and there is no assurance that a leveraging strategy
will be successful during any period in which it is employed.
Assuming the utilization of leverage by borrowings in the amount of
approximately 33 1/3% of the Trust's total assets, and an annual interest
rate of 5.60% payable on such leverage based on market rates as of the
date of this Prospectus, the annual return on the assets attributable to
the Shares that the Trust's portfolio must experience (net of expenses) in
order to cover such interest payments would be 1.87%. The Trust's actual
cost of leverage will be based on market rates at the time the Trust
undertakes a leveraging strategy, and such actual cost of leverage may be
higher or lower than that assumed.
The following table is designed to illustrate the effect on the
return to a holder of the Trust's Shares of the leverage obtained by
borrowings in the amount of approximately 33 1/3% of the Trust's total
assets, assuming hypothetical annual returns of the Trust's portfolio of
minus 10% to plus 10%. As the table shows, the leverage generally increases
the return to Shareholders when portfolio return is positive and greater
than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing
in the table are hypothetical and actual returns may be greater or less
than those appearing in the table.
Assumed Portfolio Return (net of expenses) (10)% (5)% 0 % 5% 10%
Corresponding Share Return (17.8) (10.3) (2.8)% 4.7% 12.2%
% %
The Trust currently expects that it may enter into definitive
agreements with respect to a credit facility shortly after the closing of
the Offering of the Shares made by this Prospectus. The Trust is currently
in negotiations with a limited number of large commercial banks to arrange
a credit facility pursuant to which the Trust expects to be entitled to
borrow an amount equal to approximately 33 1/3% of the Trust's total assets
(inclusive of the amount borrowed) as of the closing of the offer and sale
of the Shares. Any such borrowings would constitute financial leverage. The
terms of any agreements relating to such a credit facility have not been
determined and are subject to definitive agreement and other conditions but
the Trust anticipates that such a credit facility would have terms
substantially similar to the following: (i) a final maturity not expected
to exceed three years, subject to possible extension by the Trust; (ii)
with respect to each draw under the facility, an interest rate equal to the
lesser of LIBOR plus a stated premium or an alternate rate on the
outstanding amount of each such draw, reset over periods ranging from one
to six months; (iii) payment by the Trust of certain fees and expenses
including an underwriting fee, a commitment fee on the average undrawn
amount of the facility, an ongoing administration fee and the expenses of
the lenders under the facility incurred in connection therewith. The
facility is not expected to be convertible into any other securities of the
Trust, outstanding amounts are expected to be prepayable by the Trust prior
to final maturity without significant penalty and there are not expected to
be any sinking fund or mandatory retirement provisions. Outstanding amounts
would be payable at maturity or such earlier times as required by the
agreement. The Trust may be required to prepay outstanding amounts under
the facility or incur a penalty rate of interest in the event of the
occurrence of certain events of default. The Trust expects to indemnify the
lenders under the facility against liabilities they may incur in connection
with the facility. In addition the Trust expects that such a credit
facility would contain certain covenants which, among other things, likely
will limit the Trust's ability to pay dividends in certain circumstances,
incur additional debt, change its fundamental investment policies and
engage in certain transactions including mergers and consolidations, and
may require asset coverage ratios in addition to those required by the
Investment Company Act. The Trust may be required to pledge its assets and
to maintain a portion of its assets in cash or high grade securities as a
reserve against interest or principal payments and expenses. The Trust
expects that any credit facility would have customary covenant, negative
covenant and default provisions. There can be no assurance that the Trust
will enter into an agreement for a credit facility on terms and conditions
representative of the foregoing, or that additional material terms will not
apply. In addition, if entered into, any credit facility may in the future
be replaced or refinanced by one or more credit facilities having
substantially different terms or by the issuance of preferred shares or
debt securities.
Until the Trust borrows or issues preferred shares, the Trust's
Shares will not be leveraged, and the risks and special considerations
related to leverage described in this Prospectus will not apply. Such
leveraging of the Shares cannot be fully achieved until the proceeds
resulting from the use of leverage have been invested in longer-term debt
instruments in accordance with the Trust's investment objectives and
policies.
Strategic Transactions
Consistent with its investment objectives and policies as set forth
herein, the Trust may also enter into certain hedging and risk management
transactions. In particular, the Trust may purchase and sell futures
contracts, exchange-listed and over-the-counter put and call options on
securities, financial indices and futures contracts, forward foreign
currency contracts and may enter into various interest rate transactions
(collectively, "Strategic Transactions"). Strategic Transactions may be
used to attempt to protect against possible changes in the market value of
the Trust's portfolio resulting from fluctuations in the debt securities
markets and changes in interest rates, to protect the Trust's unrealized
gains in the value of its portfolio securities, to facilitate the sale of
such securities for investment purposes or to establish a position in the
securities markets as a temporary substitute for purchasing particular
securities. Any or all of these techniques may be used at any time. There
is no particular strategy that requires use of one technique rather than
another. Use of any Strategic Transaction is a function of market
conditions. The Strategic Transactions that the Trust may use are described
below. The ability of the Trust to hedge successfully will depend on
BlackRock's ability to predict pertinent market movements, which cannot be
assured.
Interest Rate Transactions. Among the Strategic Transactions into
which the Trust may enter are interest rate swaps and the purchase or sale
of interest rate caps and floors. The Trust expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio as a duration management technique
or to protect against any increase in the price of securities the Trust
anticipates purchasing at a later date. The Trust intends to use these
transactions for hedging and risk management purposes and not as a
speculative investment. The Trust will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the exchange by
the Trust with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal. The purchase
of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling such interest rate floor.
The Trust may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out,
with the Trust receiving or paying, as the case may be, only the net amount
of the two payments on the payment dates. Inasmuch as these Hedging
Transactions are entered into for good faith hedging purposes, BlackRock
and the Trust believe such obligations do not constitute senior securities
and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Trust will accrue the net amount of the excess, if any,
of the Trust's obligations over its entitlements with respect to each
interest rate swap on a daily basis and will segregate with a custodian an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess. The Trust will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Trust will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
Futures Contracts and Options on Futures Contracts. In connection
with its hedging and other risk management strategies, the Trust may also
enter into contracts for the purchase or sale for future delivery ("future
contracts") of debt securities, aggregates of debt securities, financial
indices, and U.S. Government debt securities or options on the foregoing to
hedge the value of its portfolio securities that might result from a change
in interest rates or market movements. The Trust will engage in such
transactions only for bona fide hedging, risk management and other
appropriate portfolio management purposes, in each case, in accordance with
the rules and regulations of the Commodity Futures Trading Commission.
Credit Derivatives. The Trust may engage in credit derivative
transactions. There are two broad categories of credit derivatives: default
price risk derivatives and market spread derivatives. Default price risk
derivatives are linked to the price of reference securities or loans after
a default by the issuer or borrower, respectively. Market spread
derivatives are based on the risk that changes in market factors, such as
credit spreads, can cause a decline in the value of a security, loan or
index. There are three basic transactional forms for credit derivatives:
swaps, options and structured instruments. The use of credit derivatives is
a highly specialized activity which involves strategies and risks different
from those associated with ordinary portfolio security transactions. If
BlackRock is incorrect in its forecasts of default risks, market spreads or
other applicable factors, the investment performance of the Trust would
diminish compared with what it would have been if these techniques were not
used. Moreover, even if BlackRock is correct in its forecasts, there is a
risk that a credit derivative position may correlate imperfectly with the
price of the asset or liability being hedged. There is no limit on the
amount of credit derivative transactions that may be entered into by the
Trust. The Trust's risk of loss in a credit derivative transaction varies
with the form of the transaction. For example, if the Trust purchases a
default option on a security, and if no default occurs with respect to the
security, the Trust's loss is limited to the premium it paid for the
default option. In contrast, if there is a default by the grantor of a
default option, the Trust's loss will include both the premium that it paid
for the option and the decline in value of the underlying security that the
default option hedged.
Calls on Securities, Indices and Futures Contracts. In order to
enhance income or reduce fluctuations in net asset value, the Trust may
sell or purchase call options ("calls") on securities and indices based
upon the prices of debt securities that are traded on U.S. securities
exchanges and in the over-the-counter markets. A call option gives the
purchaser of the option the right to buy, and obligates the seller to sell,
the underlying security, futures contract or index at the exercise price at
any time or at a specified time during the option period. All such calls
sold by the Trust must be "covered"as long as the call is outstanding
(i.e., the Trust must own the instrument subject to the call or other
securities or assets acceptable for applicable segregation and coverage
requirements). A call sold by the Trust exposes the Trust during the term
of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security, index or futures contract and
may require the Trust to hold an instrument which it might otherwise have
sold. The purchase of a call gives the Trust the right to buy the
underlying instrument or index at a fixed price. Calls on futures contracts
on securities written by the Trust must also be covered by assets or
instruments acceptable under applicable segregation and coverage
requirements.
Puts on Securities, Indices and Futures Contracts. As with calls, the
Trust may purchase put options ("puts") on Securities (whether or not it
holds such securities in its portfolio). For the same purposes, the Trust
may also sell puts on securities financial indices and puts on futures
contracts on securities if the Trust's contingent obligations on such puts
are secured by segregated assets consisting of cash or liquid high grade
debt securities having a value not less than the exercise price. The Trust
will not sell puts if, as a result, more than 50% of the Trust's assets
would be required to cover its potential obligation under its hedging and
other investment transactions. In selling puts, there is a risk that the
Trust may be required to buy the underlying instrument or index at higher
than the current market price.
Appendix B contains further information about the characteristics,
risk and possible benefits of Strategic Transactions and the Trust's other
policies and limitations (which are not fundamental policies) relating to
investment by the Trust in futures contracts and options. The principal
risks relating to the use of futures and other Strategic Transactions are:
(i) less than perfect correlation between the prices of the hedging
instrument and the market value of the securities in the Trust's portfolio;
(ii) possible lack of a liquid secondary market for closing out a position
in such instruments; (iii) losses resulting from interest rate or other
market movements not anticipated by BlackRock; and (iv) the obligation to
meet additional variation margin or other payment requirements.
Certain provisions of the Code may restrict or affect the ability of
the Trust to engage in Strategic Transactions. See "Taxes."
Reverse Repurchase Agreements
The Trust may enter into reverse repurchase agreements with respect
to its portfolio investments subject to the investment restrictions set
forth herein. Reverse repurchase agreements involve the sale of securities
held by the Trust with an agreement by the Trust to repurchase the
securities at an agreed upon price, date and interest payment. The use by
the Trust of reverse repurchase agreements involves many of the same risks
of leverage described under "Risk Factors and Special Considerations" and
"-Leverage" since the proceeds derived from such reverse repurchase
agreements may be invested in additional securities. At the time the Trust
enters into a reverse repurchase agreement, it may establish and maintain a
segregated account with the custodian containing liquid instruments having
a value not less than the repurchase price (including accrued interest). If
the Trust establishes and maintains such a segregated account, a reverse
repurchase agreement will not be considered a borrowing by the Trust;
however, under circumstances in which the Trust does not establish and
maintain such a segregated account, such reverse repurchase agreement will
be considered a borrowing for the purpose of the Trust's limitation on
borrowings. Reverse repurchase agreements involve the risk that the market
value of the securities acquired in connection with the reverse repurchase
agreement may decline below the price of the securities the Trust has sold
but is obligated to repurchase. Also, reverse repurchase agreements involve
the risk that the market value of the securities retained in lieu of sale
by the Trust in connection with the reverse repurchase agreement may
decline in price.
If the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the
Trust's obligation to repurchase the securities, and the Trust's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision. Also, the Trust would bear the risk of loss to the
extent that the proceeds of the reverse repurchase agreement are less than
the value of the securities subject to such agreement.
Lending of Securities
The Trust may lend its portfolio securities to banks or dealers which
meet the creditworthiness standards established by the Board of Trustees of
the Trust ("Qualified Institutions"). By lending its portfolio securities,
the Trust attempts to increase its income through the receipt of interest
on the loan. any gain or loss in the market price of the securities loaned
that may occur during the term of the loan will be for the account of the
Trust. The Trust may lend its portfolio securities so long as the terms and
the structure of such loans are not inconsistent with requirements of the
Investment Company Act, which currently require that (i) the borrower
pledge and maintain with the Trust collateral consisting of cash, a letter
of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the U.S. government having a value at all times not less than
100% of the value of the securities loaned, (ii) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the
value of the loan is "marked to the market" on a daily basis), (iii) the
loan be made subject to termination by the Trust at any time and (iv) the
Trust receive reasonable interest on the loan (which may include the
Trust's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase
in their market value. The Trust will not lend portfolio securities if, as
a result, the aggregate of such loans exceeds 33 1/3% of the value of the
Trust's total assets (including such loans). Loan arrangements made by the
Trust will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of five business days. All relevant facts and
circumstances, including the creditworthiness of the Qualified Institution,
will be monitored by BlackRock, and will be considered in making decisions
with respect to lending of securities, subject to review by the Trust's
Board of Trustees.
The Trust may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract
and approved by the Trust's Board of Trustees. In addition, voting rights
may pass with the loaned securities, but if a material event were to occur
affecting such a loan, the loan must be called and the securities voted.
When-Issued and Forward Commitment Securities
The Trust may purchase Securities on a "when-issued" basis and may
purchase or sell Securities on a "forward commitment" basis in order to
acquire the security or to hedge against anticipated changes in interest
rates and prices. When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later
date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Trust will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. If the Trust disposes of the right to
acquire a when-issued Security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it might incur a
gain or loss. At the time the Trust enters into a transaction on a
when-issued or forward commitment basis, it will segregate with the
custodian cash or liquid debt securities equal to at least the value of the
when-issued or forward commitment securities. The value of these assets
will be monitored daily to ensure that their marked to market value will at
all times equal or exceed the corresponding obligations of the Trust. There
is always a risk that the securities may not be delivered and that the
Trust may incur a loss. Settlements in the ordinary course, which may take
substantially more than five business days, are not treated by the Trust as
when-issued or forward commitment transactions and accordingly are not
subject to the foregoing restrictions.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest
rates rise) based upon the public's perception of the creditworthiness of
the issuer and changes, actual or anticipated, in the level of interest
rates. Securities purchased with a forward commitment or when-issued basis
may expose the Trust to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
basis can involve the additional risks that the yield available in the
market when the delivery takes place actually may be higher than that
obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Trust is fully invested may result
in greater potential fluctuation in the value of the Trust's net assets and
its net asset value per share.
Illiquid Securities
When purchasing securities that have not been registered under the
Securities Act, and are not readily marketable, the Trust will endeavor, to
the extent practicable, to obtain the right to registration at the expense
of the issuer. Generally, there will be a lapse of time between the Trust's
decision to sell any such security and the registration of the security
permitting sale. During any such period, the price of the securities will
be subject to market fluctuations. The Trust may purchase certain
securities eligible for resale to qualified institutional buyers as
contemplated by Rule 144A under the Securities Act ("Rule 144A
Securities"). Rule 144A provides an exemption from the registration
requirements of the Securities Act for the resale of certain restricted
securities to certain qualified institutional buyers. One effect of Rule
144A is that certain restricted securities may be considered liquid, though
no assurance can be given that a liquid market for Rule 144A Securities
will develop or be maintained. However, where a substantial market of
qualified institutional buyers has developed for certain unregistered
securities purchased by the Trust pursuant to Rule 144A under the
Securities Act, the Trust intends to treat such securities as liquid
securities in accordance with procedures approved by the Trust's Board of
Trustees. Because it is not possible to predict with assurance how the
market for Rule 144A Securities will develop, the Trust's Board of Trustees
has directed BlackRock to monitor carefully the Trust's investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent
that, for a period of time, qualified institutional buyers cease purchasing
restricted securities pursuant to Rule 144A, the Trust's investing in such
securities may have the effect of increasing the level of illiquidity in
its investment portfolio during such period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
You should consider carefully your ability to assume the following
risks before investing in the Shares of the Trust. An investment in the
Shares may not be suitable for all investors. Some of the Trust's
strategies will result in an above average amount of risk and volatility
and may increase your risk of loss in your investment in the Trust. You
should not consider an investment in the Shares as a complete investment
program. You should also know that an investment in the Trust is not
comparable or similar to your current investment in the BlackRock 1998 Term
Trust or any other closed-end fund managed by BlackRock.
General. As a newly-organized fund, the Trust has no operating
history. The Shares are designed primarily for investors who plan to invest
and hold their investment for the long term. Therefore, you should not
consider the Shares as a vehicle for trading purposes. The net asset value
of the Shares will fluctuate with changes in interest rates, as well as
with changes in the prices of the securities owned by the Trust. These
fluctuations are likely to be greater when the Trust is using financial
leverage.
Lower-Grade Securities. As a "high-yield fund," the majority of the Trusts
assets will be invested in high-risk, high yield securities of lower grade
quality, which are commonly referred to as "junk bonds." With its portfolio
consisting predominantly of lower grade securities, the Trust is exposed to
greater risks than a fund that owns higher grade securities. Because of the
substantial risks associated with lower grade securities, you could lose
money on your investment in Shares of the Trust, both in the short term and
the long term. Here are some risks you should consider.
o Credit Risk. Credit risk refers to an issuer's ability to make
payments of principal and interest when they are due. Because the
Trust will own securities with low credit quality, it will be subject
to a high level of credit risk. The credit quality of such securities
is considered speculative by rating agencies with respect to the
issuer's ability to pay interest or principal. The prices of lower
grade securities are more sensitive to negative corporate
developments, such as a decline in profits, or adverse economic
conditions, such as a recession, than are the prices of higher grade
securities. Securities that have longer maturities or that do not
make regular interest payments also fluctuate more in price in
response to negative corporate or economic news. Therefore, lower
grade securities may experience high default rates, which would mean
that the Trust may lose some of its investment in such securities
which would adversely affect the Trust's net asset value and ability
to make distributions. The effects of this default risk are
significantly greater for the holders of lower grade securities
because these securities often are unsecured and subordinated to the
payment rights of other creditors of the issuer.
o Market Risk. The prices of income securities tend to fall as interest
rates rise. Securities that have longer maturities tend to fluctuate
more in price in response to changes in market interest rates. A
decline in the prices of the income securities owned by the Trust
would cause a decline in the net asset value of the Trust, which
could adversely affect the trading price of the Trust's Shares. This
"market risk" is usually greater among income securities with longer
maturities or durations. Although the Trust has no policy governing
the maturities of its investments, the Trust expects that it will
invest in a portfolio of income securities with an average maturity
of approximately ten years. This means that the Trust will be subject
to greater market risk (other things being equal) than a fund
investing solely in shorter-term securities. Market risk is often
greater among certain types of income securities, such as zero-coupon
bonds, which do not make regular interest payments. As interest rates
change, these bonds often fluctuate in price more than higher quality
bonds that make regular interest payments. Because the Trust may
invest in these types of income securities, it may be subject to
greater market risk than a fund that invests only in current interest
paying securities.
o Income Risk. The income investors receive from the Trust is based
primarily on the interest it earns from its investments, which can
vary widely over the short and long term. If interest rates drop,
investors' income from the Trust over time could drop as well if the
Trust purchases securities with lower interest coupons.
o Call Risk. If interest rates fall, it is possible that issuers of
callable bonds with high interest coupons will "call" (or prepay)
their bonds before their maturity date. If a call were exercised by
the issuer during a period of declining interest rates, the Trust is
likely to have to replace such called security with a lower yielding
security. If that were to happen, it would decrease the Trust's net
investment income.
o Liquidity Risk. The Trust may invest in securities for which there is
no readily available trading market or which are otherwise illiquid.
The Trust may not be able to readily dispose of such securities at
prices that approximate those at which the Trust could sell such
securities if they were more widely traded and, as a result of such
illiquidity, the Trust may have to sell other investments or engage
in borrowing transactions if necessary to raise cash to meet its
obligations. In addition, the limited liquidity could affect the
market price of the securities, thereby adversely affecting the
Trust's net asset value and ability to make dividend distributions.
Bank Loans. The Trust may invest up to 25% of its total assets in
Bank Loans. As in the case of junk bonds, Bank Loans may be rated in lower
grade rating categories, or may be unrated but of lower grade quality. As
in the case of junk bonds, Bank Loans can provide higher yields than higher
grade income securities but are subject to greater credit and other risks.
Although Bank Loan obligations often are secured by pledges of assets by
the borrower and have other structural aspects intended to provide greater
protection to the holders of Bank Loans than the holders of unsecured and
subordinated securities, there are also additional risks in holding Bank
Loans. In particular, the secondary trading market for Bank Loans is not
very well developed, and therefore Bank Loans present increased market risk
relating to liquidity and pricing concerns. In addition, Bank Loans are
subject to counterparty risk in the event of default or insolvency of the
other party to the credit agreement. There is also no assurance that the
liquidation of the collateral would satisfy the claims of the Borrower's
obligations in the event of the nonpayment of scheduled interest or
principal, or that the collateral could be readily liquidated. As a result,
the Trust might not receive payments to which it is entitled and thereby
may experience a decline in the value of its investment and its net asset
value.
Mezzanine Investments. The Trust may invest up to 15% of its total
assets in Mezzanine Investments. Mezzanine Investments are typically
subordinated debt securities, are often unsecured by any collateral and are
often accompanied by warrants, options and other rights to purchase equity
of the issuer. The issuer's ability to repay a Mezzanine Investment often
depends on the issuer's ability to "refinance" or replace the Mezzanine
Investment with another income security. Issuers of Mezzanine Investments
often are highly leveraged and may have difficulty in refinancing.
Therefore, Mezzanine Investments may experience high default rates, which
would mean that the Trust may lose money on its Mezzanine Investments which
would adversely affect the Trust's net asset value and level of
distributions. The rights to purchase equity involve additional risks
relating to the equity portion of the investment. The purchase of rights or
warrants involves the risk that the Trust could lose the purchase value of
a right or warrant if the right to subscribe to additional shares is not
exercised prior to the rights' and warrants' expiration and the effective
price paid for the right or warrant added to the subscription price of the
related security may exceed the value of the underlying security.
Collateralized Bond Obligations. The Trust may invest up to 15% of
its total assets in collateralized bond obligations (or "CBOs"). Income
from the pool of lower grade securities collateralizing the obligations is
typically separated into tranches representing different degrees of credit
quality. The top tranche of CBOs, which represents the highest credit
quality in the pool, has the greatest collateralization and pays the lowest
interest rate. Lower CBO tranches represent lower degrees of credit quality
and pay higher interest rates to compensate for the attendant risks. The
bottom tranche specifically receives the residual interest payments (i.e.
money that is left over after the higher tiers have been paid) rather than
a fixed interest rate. The return on the lower tranches of CBOs are
especially sensitive to the rate of defaults in the collateral pool, which
increases the risk of the Trust losing its investment placed in lower CBO
tranches.
Distressed Securities. The Trust may invest up to 10% of its total
assets in Distressed Securities. Investment in Distressed Securities is
speculative and involves significant risk, including possible loss of the
principal invested. Although in current market conditions the Trust expects
that it will invest in Distressed Securities that are producing current
income, at times, Distressed Securities may not produce current income and
may require the Trust to bear certain extraordinary expenses in order to
protect and recover its investment. To the extent the Trust pursues its
secondary objective of capital appreciation through investment in
Distressed Securities that do not produce current income, the Trust will
generally be less able to achieve current income for its Shareholders.
Mortgage-Related and Asset-Backed Securities. Although the Trust may
invest in residential and commercial mortgage-related and other
asset-backed securities issued by governmental entities and private
issuers, the Trust expects that most of such investments will be limited to
CMBS, in which the Trust will not invest more than 15% of its total assets.
These securities do entail considerable risk, i.e., credit risk,
fluctuations in quoted prices for such securities, prepayment risk and
interest rate risk.
Risks Associated with Mortgage-Related Securities. The risks
associated with mortgage-related securities include:
o Credit risks associated with the performance of the underlying
mortgage properties and of the borrowers owning these properties;
o Adverse changes in economic conditions and circumstances are more
likely to have an adverse impact on mortgage-related securities
secured by loans on certain types of commercial properties than on
those secured by loans on residential properties;
o Prepayment risk can lead to significant fluctuations in value of the
mortgage-related security; and
o Loss of all or part of the premium, if any, paid if there is a
decline in the market value of the security, whether resulting from
changes in interest rates or prepayments on the underlying mortgage
collateral.
Prepayment Risks. The yield and maturity characteristics of
mortgage-related and other asset-backed securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may normally be prepaid at any time because the underlying
assets (i.e., loans) generally may be prepaid at any time, although there
may be limitations on prepayments in CMBS. In calculating the average
weighted maturity of the Trust, the maturity of mortgage-related and other
asset-backed securities held by the Trust will be based on estimates of
average life which take prepayments into account. These estimates, however,
may not accurately predict actual prepayment rates. Prepayment risks
include the following:
o The relationship between prepayments and interest rates may give some
lower grade mortgage-related and asset-backed securities less
potential for growth in value than conventional bonds with comparable
maturities;
o In addition, when interest rates fall, the rate of prepayments tends
to increase. During such periods, the reinvestment of prepayment
proceeds by the Trust will generally be at lower rates than the rates
that were carried by the obligations that have been prepaid;
o Because of these and other reasons, a mortgage related or
asset-backed security's total return and maturity may be difficult to
predict; and
o To the extent that the Trust purchases mortgage-related or
asset-backed securities at a premium, prepayments may result in loss
of the Trust's principal investment to the extent of premium paid.
Risks Associated with CMBS. The Trust's investments in commercial
mortgage-backed securities (which are referred to as "CMBS") will typically
consist of CMBS which are subordinated to more senior classes of such
securities ("Subordinated CMBS"). Assets underlying CMBS may relate to only
a few properties or to a single property. Because the commercial mortgage
loans that back a CMBS are generally not amortizing or not fully
amortizing, at their maturity date, repayment of the remaining principal
balance or "balloon" is due and usually must be repaid through the
attainment of an additional loan or sale of the property. If the commercial
borrower is unable to refinance or attain an additional loan or the
property is sold at below the remaining principal amount of the mortgage,
the result could be a decline in the value, and thus the price, of the
related CMBS (which decline could be greater in the case of a Subordinated
CMBS).
CMBS generally are structured to protect the senior class investors
against potential losses on the underlying mortgage loans. This is
generally provided by having the Subordinated CMBS take the first loss on
any defaults on the underlying commercial mortgage loans. In general,
Subordinated CMBS are entitled to receive repayment of principal only after
all required principal payments have been made to more senior classes and
have subordinate rights as to receipt of interest distributions. Such
Subordinated CMBS are subject to a substantially greater risk of nonpayment
than are senior classes of CMBS. Even within a class of subordinated
securities, most CMBS are structured with a hierarchy of levels (or "loss
positions"). Loss positions are the order in which non-recoverable losses
of principal are applied to the securities within a given structure.
Risks Associated with Non-Mortgage Asset-Backed Securities.
Non-mortgage asset-backed securities involve certain risks in addition to
those presented by mortgage-related securities.
o Primarily, these securities do not have the benefit of the same
security interest in the underlying collateral and are more dependent
on the borrower's ability to pay.
o Credit card receivables are generally unsecured, and the debtors are
entitled to the protection of a number of state and Federal consumer
credit laws many of which give debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due.
o Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to
sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders
of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in
all of the obligations backing such receivables.
o There is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Foreign Securities. The Trust may invest up to 35% of its total
assets in debt securities of non-U.S. issuers or that are denominated in
various foreign currencies ("Foreign Securities"). The Trust's investment
in Foreign Securities may include debt securities issued by foreign
governments and other sovereign entities and debt securities issued by
foreign corporations. Typically, the Trust will not hold any Foreign
Securities of issuers in so-called "emerging markets" (or lesser developed
countries), and in any case the Trust will not invest more than 10% of its
total assets in such securities. Investments in such securities are
particularly speculative.
Investing in Foreign Securities involves certain risks not involved
in domestic investments, including, but not limited to:
o fluctuations in foreign exchange rates
o future foreign economic, financial, political and social
developments
o different legal systems
o the possible imposition of exchange controls or other foreign
governmental laws or restrictions
o lower trading volume
o much greater price volatility and illiquidity of certain foreign
securities markets
o different trading and settlement practices
o less governmental supervision
o regulation changes in currency exchange rates
o high and volatile rates of inflation
o fluctuating interest rates
o less publicly available information
o different accounting, auditing and financial record-keeping
standards and requirements
Investments in foreign sovereign debt securities, especially in
emerging market countries, will expose the Trust to the direct or indirect
consequences of political, social or economic changes in the countries that
issue the securities or in which the issuers are located. Certain countries
in which the Trust may invest, especially emerging market countries, have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations, large amounts
of external debt, balance of payments and trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty and instability. The cost of servicing external debt
will generally be adversely affected by rising international interest rates
because many external debt obligations bear interest at rates which are
adjusted based upon international interest rates. In addition, with respect
to certain foreign countries, there is a risk of:
o the possibility of expropriation of assets
o confiscatory taxation
o difficulty in obtaining or enforcing a court judgment
o economic, political or social instability
o diplomatic developments that could affect investments in those
countries.
Because the Trust may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities in the Trust and the unrealized
appreciation or depreciation of investments. Currencies of certain
countries may be volatile and therefore may affect the value of securities
denominated in such currencies, which means that the Trust's net asset
value could decline as a result of changes in the exchange rates between
foreign currencies and the U.S. dollar. These risks often are heightened
for investments in smaller, emerging capital markets. In addition,
individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as:
o growth of gross domestic product
o rates of inflation
o capital reinvestment
o resources
o self-sufficiency
o balance of payments position
o certain investments in Foreign Securities also may be subject to
foreign withholding taxes.
Investing in securities of companies in emerging markets may entail
special risks relating to potential political and economic instability and
the risks of expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment, convertibility of currencies into
U.S. dollars, the lack of hedging instruments, and on repatriation of
capital invested. Emerging securities markets are substantially smaller,
less developed, less liquid and more volatile than the major securities
markets. The limited size of emerging securities markets and limited
trading value compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of portfolio
securities, especially in these markets. In addition, securities traded in
certain emerging markets may be subject to risks due to the inexperience of
financial intermediaries, a lack of modern technology, the lack of a
sufficient capital base to expand business operations, and the possibility
of temporary or permanent termination of trading. Settlement mechanisms in
emerging securities markets may be less efficient and reliable than in more
developed markets. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation for
many years. Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to have
negative effects on the economies and securities markets of certain
emerging market countries. Typically, the Trust will not hold any Foreign
Securities of emerging market issuers, and, if it does, such securities
will not comprise more than 10% of the Trust's net assets.
As a result of these potential risks, BlackRock may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Trust may
invest in countries in which foreign investors, including BlackRock, have
had no or limited prior experience.
Leverage. Although the use of leverage by the Trust may create an
opportunity for increased net income and capital appreciation for the
Shares, it also results in additional risks and can magnify the effect of
any losses. If the income or gains earned on securities purchased with
leverage proceeds is greater than the cost of leverage, the Trust's return
will be greater than if leverage had not been used. Conversely, if the
income or gains from the securities purchased with such proceeds does not
cover the cost of leverage, the return to the Trust will be less than if
leverage had not been used. There is no assurance that a leveraging
strategy will be successful. Leverage involves risks and special
considerations for Shareholders including:
o The likelihood of greater volatility of net asset value and market
price of the Shares than a comparable portfolio without leverage;
o The risk that fluctuations in interest rates on borrowings and
short-term debt or in the dividend rates on any preferred stock that
the Trust must pay will reduce the return to the Shareholders;
o The effect of leverage in a declining market, which is likely to
cause greater decline in the net asset value of the Shares than if the
Trust were not leveraged, which may result in a greater decline in
the market price of the Shares; and
o When the Trust uses financial leverage, the investment advisory fees
payable to BlackRock Advisors, Inc. will be higher than if the Trust
did not use leverage.
Any requirement that the Trust sell assets at a loss in order to
redeem or pay any leverage or for other reasons would reduce the Trust's
net asset value and also make it difficult for the net asset value to
recover. BlackRock in its best judgment nevertheless may determine to
continue to use leverage if it expects that the benefits to the Trust's
Shareholders of maintaining the leveraged position will outweigh the
current reduced return.
Certain types of borrowings by the Trust may result in the Trust
being subject to covenants in credit agreements relating to asset coverage
and Trust composition requirements. The Trust may be subject to certain
restrictions on investments imposed by guidelines of one or more Rating
Agencies, which may issue ratings for the short-term corporate debt
securities or preferred stock issued by the Trust. These guidelines may
impose asset coverage or Trust composition requirements that are more
stringent than those imposed by the Investment Company Act of 1940, as
amended (the "Investment Company Act"). BlackRock does not believe that
these covenants or guidelines will impede BlackRock from managing the
Trust's portfolio in accordance with the Trust's investment objectives and
policies. The Trust may borrow from affiliates of BlackRock, provided that
the terms of such borrowings are no less favorable than those available
from comparable sources of funds in the marketplace.
Other Investment Management Techniques. The Trust may use various
other investment management techniques that also involve certain risks and
special considerations, including engaging in hedging and risk management
transactions (which we refer to as "Strategic Transactions") including
interest rate and foreign currency transactions, options, futures, swaps
and other derivatives transactions. Strategic Transactions will be entered
into to seek to manage the risks of the Trust's portfolio of securities,
but may have the effect of limiting the gains from favorable market
movements. Strategic Transactions involve risks, including (i) that the
loss on the Strategic Transaction position may be larger than the gain in
the portfolio position being hedged and (ii) that the derivative
instruments used in Strategic Transactions may not be liquid and may
require the Trust to pay additional amounts of money. Successful use of
Strategic Transactions depends on BlackRock's ability to predict correctly
market movements which, of course, cannot be assured. Losses on Strategic
Transactions may reduce the Trust's net asset value and its ability to pay
dividends if they are not offset by gains on the portfolio positions being
hedged. The Trust may also lend the securities it owns to others, which
allows the Trust the opportunity to earn additional income. Although the
Trust will require the borrower of the securities to post collateral for
the loan and the terms of the loan will require that the Trust be able to
reacquire the loaned securities if certain events occur, the Trust is still
subject to the risk that the borrower of the securities may default, which
could result in the Trust losing money, which would result in a decline in
the Trust's net asset value. The Trust may also purchase securities for
delayed settlement. This means that the Trust is generally obligated to
purchase the securities at a future date for a set purchase price,
regardless of whether the value of the securities is more or less than the
purchase price at the time of settlement.
Market Price, Discount and Net Asset Value of Shares. Whether
investors will realize gains or losses upon the sale of Shares will not
depend directly upon the Trust's net asset value, but will depend upon the
market price of the Shares at the time of sale. Since the market price of
the Shares will be affected by such factors as the relative demand for and
supply of the Shares in the market, general market and economic conditions
and other factors beyond the control of the Trust, the Trust cannot predict
whether the Shares will trade at, below or above net asset value or at,
below or above the public offering price. Shares of closed-end funds often
have traded at a discount to their net asset values and the Trust's
Shares may trade at such a discount. This risk may be greater for investors
expecting to sell their Shares of the Trust soon after completion of the
public offering. The Shares are designed primarily for long-term investors,
and investors in the Shares should not view the Trust as a vehicle for
trading purposes. See "Description of Shares."
Anti-Takeover Provisions. The Trust's Agreement and Declaration of
Trust (the "Trust Agreement") contains provisions limiting (i) the ability
of other entities or persons to acquire control of the Trust, (ii) the
Trust's freedom to engage in certain transactions, and (iii) the ability of
the Trust's Board of Trustees or Shareholders to amend the Trust Agreement.
These provisions of the Trust Agreement may be regarded as "anti-takeover"
provisions. These provisions could have the effect of depriving the
Shareholders of opportunities to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to
obtain control of the Trust in a tender offer or similar transaction. See
"Investment Objectives and Policies" and "Description of Shares."
Year 2000 Risks. Like other investment companies, financial and
business organizations and individuals around the world, the Trust could be
adversely affected if the computer systems used by BlackRock and the
Trust's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue." BlackRock is taking steps to
address the Year 2000 Issue with respect to the computer systems that it
uses and to obtain assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, however, we cannot
give any assurance that these steps will be sufficient to avoid any adverse
impact on the Trust.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as
fundamental policies, which cannot be changed without approval by the
holders of a majority of the Trust's outstanding voting shares (as defined
in the Investment Company Act). All other investment policies of the Trust
are considered non-fundamental and may be changed by the Board of Trustees
of the Trust without prior approval of the Trust's outstanding voting
shares. The Trust may not:
o Purchase any security if as a result 25% or more of the
total assets of the Trust would be invested in the
securities of issuers having their principal business
activities in the same industry, provided that there
shall be no such limitation on the purchase of
obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
o Purchase commodities or commodity contracts, except that
the Trust may purchase and sell options, futures
contracts and options thereon and may engage in interest
rate and foreign currency transactions.
o Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
programs, except that the Trust may purchase and sell
securities that are secured by, or issued by companies
that invest or deal in, real estate, oil, gas or other
minerals, or interests therein.
o Issue senior securities or borrow money except as
permitted by the Investment Company Act.
o Make loans to others, except through the purchase of debt
obligations (including Bank Loans) and the entry into
repurchase agreements. However, the Trust may lend its
portfolio securities in an amount not to exceed 33 1/3%
of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines
established by the SEC and the Trust's Board of Trustees.
o Act as an underwriter of securities of other issuers,
except to the extent the Trust may be deemed an
underwriter under the Securities Act, by virtue of its
purchase or sale of portfolio securities.
o Invest in the securities of a company for the purpose of
exercising management or control, but the Trust will vote
the securities it owns in its portfolio as a shareholder
or otherwise exercise its rights in accordance with the
terms of the securities in accordance with its views.
o Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to
the extent related to the purchase of securities on a
when-issued or forward commitment basis and the deposit
of assets in escrow in connection with writing covered
put and call options and collateral and initial or
variation margin arrangements with respect to options,
forward contracts, futures contracts, options on futures
contracts, swaps, caps, collars and floors.
o Purchase securities of other investment companies, except
to the extent permitted under the Investment Company Act.
TERMS OF THE OFFERING
General. In connection with the scheduled liquidation of The
BlackRock 1998 Term Trust Inc. ("BBT") on or about December 31, 1998, the
Trust is offering to the holders of record of common shares of BBT (the
"BBT Shares") as of the close of business on November 12, 1998 (the "Record
Date") the right to request to subscribe for Shares of the Trust. BlackRock
Advisors, Inc. or one of its affiliates (not the Trust or its investors)
will pay the sales load or underwriting commission on the Shares you buy
from its own assets to the Underwriters or other broker-dealers and
financial institutions participating in the Offering ("Participating
Institutions") in this Offering equal to ____% of the Subscription Price
per Share. As described below under "-- Liquidation of BBT," Record Date
holders of BBT Shares who exercise their right to request to subscribe for
Shares may direct that all or a portion of their Liquidating Distribution
be credited to the account through which they will purchase the Shares. The
Trust is also offering the right to request to subscribe for Shares to
Record Date holders of common shares of the other closed-end investment
companies for which BlackRock acts as investment adviser (together with
BBT, the "BlackRock Trusts"). Record Date holders of common shares (the
"BlackRock Trust Shares") of the BlackRock Trusts are referred to as the
"Eligible Shareholders." If you do not subscribe for Shares of the Trust,
you will still received your Liquidation Distribution.
Subscription Privilege of Eligible Shareholders. Eligible
Shareholders may request to subscribe for Shares at a rate of one Share for
each BlackRock Trust Share held on the Record Date (the "Subscription
Privilege") and may also request to subscribe for any number of additional
Shares. Eligible Shareholders should carefully read this Prospectus,
including the section titled "Risk Factors and Special Considerations," and
should consult with their broker to determine whether the Shares are a
suitable investment.
Subscription Price; Minimum Purchase. The Subscription Price for the
Shares is $15.00 per Share. BlackRock Advisors, Inc. or an affiliate (not
the Trust or its investors) will pay the sales load or underwriting
commission from its own assets to the Underwriters and Participating
Institutions and other broker-dealers and financial institutions
participating in the Offering ("Participating Institutions") in connection
with sales of Shares. The minimum purchase is 100 shares ($1,500). Holders
of fewer than 100 BlackRock Trust Shares may request to purchase 100 Shares
pursuant to the Subscription Privilege and may request to subscribe for
additional Shares.
Minimum Offering Amount. The Board of Trustees of the Trust has
determined not to consummate the Offering unless a sufficient number of
orders to purchase Shares in the Offering (the "Minimum Offering Amount")
are received such that the Board of Trustees determines, in its sole
discretion, that the Trust could commence operations with an expense ratio
approximating that estimated in this Prospectus. In connection with seeking
to achieve the Minimum Offering Amount, the Trust may offer the opportunity
to request to subscribe for Shares of the Trust at the Subscription Price
to employees and customers of the BlackRock and its affiliates who may not
be Eligible Shareholders.
Expiration Date and Pricing Date. Any Record Date Eligible
Shareholder that wishes to request to subscribe for Shares pursuant to the
Subscription Privilege must do so by 5:00 p.m., New York City time, on
December 17, 1998 (the "Subscription Privilege Expiration Date"). Exercises
of Subscription Privileges will be processed on December 17, 1998 (the
"Pricing Date").
Non-Transferability. The rights to participate in the Subscription
Privilege are non-transferable and, therefore, may not be purchased or
sold. The Subscription Privilege is granted to Record Date Eligible
Shareholders, which term, for purposes of the Offering, includes (i) the
person or persons who are the owners, co-owners and beneficiaries of the
account in which the BlackRock Trust Shares are held (collectively, the
"Designated Persons") and (ii) any account (including a trust, Individual
Retirement Account, qualified plan account or other similar arrangement)
for which any Designated Person is directly or indirectly an owner, a
co-owner or a beneficiary.
Methods of Subscription. Shares may be purchased in the Offering,
only through the Underwriters or other Participating Institutions.
o If you are an Eligible Shareholder who holds your
BlackRock Trust Shares with or through one of the Underwriters or other
Participating Institutions, you may contact your broker or financial
adviser, who may deem the type of investment to be inappropriate for your
risk profile, to request to subscribe for Shares on your behalf.
o If you are an Eligible Shareholder who holds your
BlackRock Trust Shares with or through a broker-dealer or financial
institution that is not one of the Underwriters or other Participating
Institutions, you should contact [BlackRock] at the address and telephone
number listed below to arrange for an account to be established through
which you can purchase the Shares,
[BlackRock Financial Management]
[345 Park Avenue]
[New York, New York]
[800- - ]
Payment of Shares. Payment for Shares requested to be subscribed for
must be made by December 23, 1998 (the "Settlement Date") to the
Underwriters or other Participating Institution through which you subscribe
for Shares.
Liquidation of BBT. BBT is a diversified, closed-end management
investment company that completed its initial public offering on April 23,
1991 at a price of $10 per share and is listed on the NYSE under the symbol
"'BBT." BBT's investment objective is to manage a portfolio of high quality
securities that will return $10 per share to investors on or shortly before
December 31, 1998, while providing high monthly income. The net asset value
per BBT Share at the close of business on November , 1998 (the last trading
date prior to the date of this Prospectus on which BBT publicly reported
its net asset value) was $ and the last reported sales price of a BBT Share
on that date was $ . From its initial public offering until , 1998, BBT has
provided an annualized total return of 6.56%, assuming all dividends were
reinvested in additional BBT Shares.
BBT will liquidate its portfolio of securities and will distribute
substantially all of the cash comprising its net assets (the "Liquidating
Distribution").
If you are a BBT Eligible Shareholder and want to participate in the
Subscription Privilege, you can instruct the State Street Bank and Trust
(the "Subscription Agent") as the agent of BBT in connection with the
Liquidating Distribution, to credit your Liquidating Distribution to the
account of the Underwriter or other Participating Institution through which
you are subscribing for Shares. Although the Liquidating Distribution is
expected to be made before the Settlement Date, each Shareholder is
responsible for payment of the Subscription Price for the Shares to which
they subscribe in the Offering whether or not the Liquidating Distribution
is made. In the event the Offering is not consummated for any reason, BBT
Shareholders who requested to subscribe for Shares will be paid their pro
rata portion of the Liquidating Distribution in accordance with the terms
of the plan of liquidation of BBT. If you do not subscribe for Shares of
the Trust, you will still receive your full Liquidating Distribution.
Sale of Shares to the Underwriters. On the Expiration Date, the Trust
will sell, and the Underwriters will agree to purchase for distribution,
the number of Shares set forth opposite their names under "Underwriting."
The Underwriters are committed to purchase all of such Shares for
distribution if any such Shares are purchased. The Shares will commence
trading on the New York Stock Exchange under the symbol ("BHY") on the
business day immediately following the Pricing Date. It is expected that
delivery and payment for the Shares will take place on the Settlement Date.
Confirmations for all Shares purchased by Eligible Shareholders and clients
of the Underwriters and other Participating Institutions will be sent on or
before the Settlement Date.
All questions as to the validity, form, eligibility (including times
of receipt and matters pertaining to beneficial ownership) and other
requests to subscribe for Shares will be determined by the Underwriters
which determinations will be final and binding. The Underwriters reserve
the absolute right to reject any or all requests for subscriptions for
Shares not properly submitted or the acceptance of which would, in the
opinion of counsel for the Underwriters, be unlawful. The Underwriters also
reserve the right to waive any irregularities or conditions, and the
interpretations of the Underwriters of the terms and conditions of the
Offering shall be final and binding. Any irregularities in connection with
requests for subscriptions for Shares must be cured within such time as the
Underwriters shall determine unless waived. None of the Trust, the
Underwriters nor the other Participating Institutions shall be under any
duty to give notification of defects in such requests for subscriptions for
Shares or incur any liability for failure to give such notifications.
Requests for subscriptions for Shares will not be deemed to have been made
until such irregularities have been cured or waived. If you do not
subscribe for Shares of the Trust, you will still receive your full
Liquidating Distribution.
Important Dates to Remember
Record Date..................................................November 12, 1998
Subscription Period........................November, 1998 to December 17, 1998
Final BBT Trading Date.......................................December 14, 1998
Subscription Privilege Expiration Date.......................December 17, 1998
Pricing Date.................................................December 17, 1998
First Trading Date...........................................December 18, 1998
Settlement/Payment to the Trust Date(1)......................December 23, 1998
(1) Some Participating Institutions may request payment by investors at an
earlier date prior to the Settlement/Payment to the Trust Date.
MANAGEMENT OF THE TRUST
BlackRock Advisors, Inc., a global asset management company with
approximately $120 billion of assets under management, will act as the
Trust's investment adviser. BlackRock Advisors, Inc. is a wholly-owned
subsidiary of PNC Asset Management Group with over 500 employees..
BlackRock currently manages the assets of 56 investment companies,
including 21 closed-end funds. BlackRock Advisors, Inc. has entered into a
sub-advisory agreement with BlackRock, pursuant to which the
responsibilities of managing the Trust's portfolio on a daily basis have
been delegated to BlackRock. BlackRock was founded in 1988 and has
expertise in the government, mortgage, corporate, asset-backed, municipal,
non-dollar and high yield sectors of the fixed income securities market.
BlackRock currently has over $60 billion in discretionary fixed income
assets under management invested in a broad array of fixed income products
across the yield curve. BlackRock currently manages approximately $1.2
billion in lower grade securities, including approximately $735 million in
lower grade corporate securities, including bonds issued by financial,
industrial and utility companies, Yankee bonds, preferred stocks and other
income securities. BlackRock also manages approximately $44.2 billion in
cash or other short-term, highly liquid investments, $12.6 billion of
equity securities and $1.6 billion in various alternative investments.
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement (the "Advisory
Agreement"), the Trust has retained BlackRock Advisors, Inc. to manage the
investment of the Trust's assets and to provide such investment research,
advice and supervision, in conformity with the Trust's investment objective
and policies, as may be necessary for the operations of the Trust.
The Advisory Agreement provides, among other things, that BlackRock
Advisors, Inc. will bear all expenses of its employees and overhead
incurred in connection with its duties under the Advisory Agreement
(including the fees and expenses of BlackRock) and will pay all directors'
fees and salaries of the Trust's trustees and officers who are affiliated
persons (as such term is defined in the Investment Company Act) of
BlackRock Advisors, Inc. except that the Board of Trustees may approve
reimbursement for the time spent on Trust operations of BlackRock Advisors,
Inc.'s personnel who spend substantial time on the operations (other than
the provision of investment advice) of the Trust or other investment
companies advised by BlackRock Advisors, Inc.. The Advisory Agreement
provides that the Trust shall pay to BlackRock Advisors, Inc. a monthly fee
for its services at the annual rate of [1.05%] of the Trust's average
weekly value of the total assets of the Trust minus the sum of accrued
liabilities (other than the aggregate indebtedness constituting financial
leverage) (the "Managed Assets").
Although BlackRock Advisors, Inc. intends to devote such time and
effort to the business of the Trust as is reasonably necessary to perform
its duties to the Trust, the services of BlackRock Advisors, Inc. are not
exclusive and BlackRock Advisors, Inc. provides similar services to other
investment companies and other clients and may engage in other activities.
The Advisory Agreement also provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, BlackRock Advisors, Inc. is not liable to the Trust
or any of the Trust's Shareholders for any act or omission by BlackRock
Advisors, Inc. in the supervision or management of its respective
investment activities or for any loss sustained by the Trust or the Trust's
Shareholders and provides for indemnification by the Trust of BlackRock
Advisors, Inc., its partners, members, officers, employees, agents and
control persons for liabilities incurred by them in connection with their
services to the Trust, subject to certain limitations and conditions.
The Advisory Agreement was approved by BlackRock, as the Trust's
initial shareholder, on [November] 12, 1998, and by the Trust's Board of
Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (as such term is defined
in the Investment Company Act), on [November] 12, 1998. The Advisory
Agreement will be submitted to Shareholders for their approval at the first
meeting of shareholders of the Trust. The Advisory Agreement will continue
in effect for a period of two years from its effective date, and if not
sooner terminated, will continue in effect for successive periods of 12
months thereafter, provided that each continuance is specifically approved
at least annually by both (1) the vote of a majority of the Trust's Board
of Trustees or the vote of a majority of the outstanding voting securities
of the Trust (as such term is defined in the Investment Company Act) and
(2) by the vote of a majority of the Trustees, who are not parties to such
Agreement or interested persons (as such term is defined in the Investment
Company Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be
terminated as a whole at any time by the Trust, without the payment of any
penalty, upon the vote of a majority of the Trust's Board of Trustees or a
majority of the outstanding voting securities of the Trust or by BlackRock
Advisors, Inc., on 60 days' written notice by either party to the other.
The Advisory Agreement will terminate automatically in the event of its
assignment (as such term is defined in the Investment Company Act and the
rules thereunder).
Portfolio Management Team
Dennis Schaney, Managing Director of BlackRock and Head of the High
Yield Team. Mr. Schaney has primary responsibility for BlackRock's high
yield efforts. Prior to joining BlackRock in 1998, Mr. Schaney spent nine
years with Merrill Lynch, from 1989-1998, where he was a Managing Director
in the firm's Global Fixed Income Research and Economics Department. During
the time Mr. Schaney managed Merrill's Corporate and Municipal Bond
Research Departments, the group became the top-ranked Fixed Income Research
Department according to industry polls. Mr. Schaney's specific sector
specialties included the media, entertainment, and cable sectors for both
the high yield and investment grade markets for which he was named to
Institutional Investor's All American Fixed Income Team for five of the
last six years. In addition, throughout his career, Mr. Schaney has covered
the Auto, Transportation, Technology and Aerospace industries. Mr. Schaney
began his investment career with Standard & Poor's from 1983-1985, followed
by four years with The First Boston Corporation from 1985-1989; two years
as an analyst in the firm's Fixed Income and Research Department and two
years as a Vice President in the firm's Investment Banking Department.
Prior to embarking on an investment career, Mr Schaney worked with United
Technologies from 1980-1983. Mr. Schaney earned a BS degree in finance from
the University of Bridgeport in 1980 and an MS degree in financial
management from Fairfield University in 1995. He is a member of the Fixed
Income Analyst Society.
Michael C. Buchanan, CFA, Director of BlackRock. Mr. Buchanan has
primary responsibility for trading and overseeing risk management for the
High Yield Team. Prior to joining BlackRock in 1998, Mr. Buchanan was a
Vice President at Conseco Capital Management ("CCM") from 1990-1998 where
he was a portfolio manager responsible for high yield debt, bank loan and
emerging markets debt trading. He also oversaw investment grade corporate
bond trading. At CCM, Mr. Buchanan managed two high yield mutual Trusts,
and was involved in the management and oversight of three high yield debt
CBOs and a bank loan CLO. Prior to assuming trading responsibilities in the
high yield debt area, Mr. Buchanan's previous experience at CCM included
credit research on the aerospace, defense and paper/forest products sectors
and convertible securities trading. Mr. Buchanan graduated from Brown
University with a BA in business economics and organizational
behavior/management in 1990. He is a Chartered Financial Analyst and has
been on the Indianapolis Society of Financial Analysts since 1993.
Mark J. Williams, Director of BlackRock. Mr. Williams has primary
responsibility for originating and evaluating Bank Loan investments for the
High Yield Team. He is also involved in the evaluation and sourcing of
Mezzanine Investments. Prior to joining BlackRock in 1998, Mr. Williams
spent eight years at PNC Bank's New York Office from 1990-1998 and was
co-founder of the bank's leveraged finance group. In that capacity, he was
responsible for originating and structuring proprietary middle market
leveraged deals, along with sourcing and evaluating broadly syndicated
leveraged loans in the primary and secondary markets for PNC Bank's
investment portfolio. Mr. Williams has developed extensive contacts over
the years working with private equity sponsors and major loan syndication
groups. Prior to 1990, he worked in PNC's Philadelphia Office in a variety
of marketing and corporate finance roles from 1983-1990. Mr. Williams
obtained a BA in Economics from Franklin and Marshall College in 1983.
Peter Schwartzman, Vice President of BlackRock. Mr. Schwartzman is a
member of the High Yield Team and an analyst covering the health care,
gaming, retail, textile and lodging industries. Prior to joining BlackRock
in 1998 Mr. Schwartzman spent over four years with Alliance Capital
management as an analyst from 1994-1998 covering a broad range of high
yield and high grade companies in the health care, gaming, retail, textile
and lodging sectors. In addition, Mr. Schwartzman has done considerable
work on a broad array of distressed situations in the manufacturing,
convenience store, and consumer produce sectors. During his four years at
Alliance, his recommendations contributed to the high yield portfolio's
consistently high level of performance. Prior to Alliance, Mr. Schwartzman
spent four years as an analyst at Moody's Investors Service in the
Tax-Exempt Health Care Group from 1989-1994. At Moody's, Mr. Schwartzman
was responsible for the analysis of hospitals, health systems and long term
care facilities. During his four years at Moody's he rated over 100
transactions. Mr. Schwartzman received his MBA in Finance from New York
University - Stern School of Business in 1991 and his BA from Trinity
College in 1988. He is a member of the Fixed Income Analysis Society and
also serves on the Finance Committee of the Board of Directors of the New
York Society of the Deaf.
The Administration Agreements
BlackRock and Prudential Investments Fund Management LLC (an
affiliate of Prudential Securities Incorporated, one of the Underwriters)
will act as the Trust's administrators (the "Administrators"). Under the
respective Administration Agreements with the Trust (the "Administration
Agreements"), the Administrators administer the Trust's corporate affairs
subject to the supervision of the Trust's Board of Trustees and in
connection therewith furnish the Trust with office facilities together with
such ordinary clerical and bookkeeping services (e.g., preparation of
annual and other reports to stockholders and the SEC and filing of federal,
state and local income tax returns) as are not being furnished by the
Custodian. The Administrators also may facilitate bank or other borrowing
by the Trust when BlackRock Advisors, Inc. determines that leverage may be
in the best interests of the Trust's Shareholders. In connection with its
administration of the corporate affairs of the Trust, the Administrator
will bear the following expenses:
(a) salaries and expenses of all personnel of the
Administrators; and
(b) all expenses incurred by the Administrators or by the Trust
in connection with administering the ordinary course of the Trust's
business, other than those assumed by the Trust, as described below.
The Administration Agreements provide that the Trust shall pay to
each Administrator a monthly fee for its services at an annual rate of .05%
of the Trust's average weekly Managed Assets (as described above).
The Administration Agreements were approved by the Trust's Board of
Trustees on November ___, 1998 and are effective until is terminated. Each
terminates automatically if it is assigned (as defined in the Investment
Company Act and the rules thereunder) and is otherwise terminable on 60
days' notice by either party to the other.
Expenses of the Trust
Except as indicated above, the Trust will pay all of its expenses,
including fees of the trustees not affiliated with BlackRock Advisors, Inc.
and board meeting expenses; fees of BlackRock Advisors, Inc. and the
Administrator; interest charges; taxes; organizational expenses; charges
and expenses of the Trust's legal counsel and independent accountants, and
of the transfer agent, registrar and dividend disbursing agent of the
Trust; expenses of repurchasing shares; expenses of printing and mailing
share certificates, shareholder reports, notices, proxy statements and
reports to governmental offices; brokerage and other expenses connected
with negotiating, effecting purchase or sale, or registering privately
issued portfolio securities; fees and expenses of the Custodian for all
services to the Trust, including safekeeping Trusts and securities and
maintaining required books and accounts; expenses in calculating and
publishing the net asset value of the Trust's shares; expenses of
membership in investment company associations; expenses of fidelity bonding
and other insurance expenses including insurance premiums; expenses of
shareholders meetings; SEC and state blue sky registration fees; New York
Stock Exchange listing fees; fees payable to the National Association of
Securities Dealers, Inc. in connection with this offering; and its other
business and operating expenses. The Trust will pay offering expenses of
$ ($ if the over-allotment option is exercised in
full), which will be deducted from the total proceeds of the offering.
BlackRock Advisors, Inc. has agreed that it or an affiliate will pay all
offering expenses of the Trust that exceed $0.02 per Share.
TRUSTEES AND OFFICERS OF THE TRUST
The officers of the Trust manage its day to day operations. The
officers are directly responsible to the Trust's Board of Trustees which
sets broad policies for the Trust and chooses its officers. The following
is a list of the trustees and officers of the Trust and a brief statement
of their present positions and principal occupations during the past five
years. Trustees who are interested persons of the Trust (as defined in the
Investment Company) are denoted by an asterisk (*). The business address of
the Trust, BlackRock Advisors, Inc., and their Board members and officers
is 345 Park Avenue, New York, New York 10154, unless specified otherwise
below.
Principal Occupation
During the Past Five
Name and Address Title Years and Other Affiliations
- ---------------- ------- ----------------------------
Andrew F. Brimmer Trustee President of Brimmer & Company,
4400 MacArthur Blvd., Inc., a Washington, D.C.-based
N.W. Suite 302 economic and financial consulting
Washington, DC 20007 firm. Formerly member of the Board
Age: 71 of Governors of the Federal Reserve
System. Director of BankAmerica
Corporation (Bank of America),
BellSouth Corporation, The
Blackstone Income Trust Inc.,
College Retirement Equities Trust
(Trustee), Commodity Exchange, Inc.
(Public Governor), Connecticut
Mutual Life Insurance Company, E.I.
du Pont de Nemours & Company,
Electronic Realty Associates,
Gannett Company (publishing), MNC
Financial Corporation (American
Security Bank), NMC Capital
Management, Navistar International
Corporation (truck manufacturing)
and UAL Corporation (United
Airlines).
Richard E. Cavanagh Trustee President and Chief Executive
845 Third Avenue Officer of The Conference
New York, NY 10022 Board, Inc., a leading global
Age: 51 business membership organization.
Former Executive Dean of the John F.
Kennedy School of Government at
Harvard University from 1988-1995.
Acting Director, Harvard Center for
Business and Government (1991-1993).
Formerly Partner (principal) of
McKinsey & Company, Inc.
(1980-1988). Former Executive
Director of Federal Cash Management,
White House Office of Management and
Budget (1977-1979). Co-author, THE
WINNING PERFORMANCE (best selling
management book published in 13
national editions). Trustee,
Wesleyan University and Drucker
Foundation, Director, Olin Corp.
(chemicals and metals) and Fremont
Group (investments) and LCI
International (telecommunication).
Kent Dixon Trustee Consultant/Investor. Former
9495 Blind Pass Road President and Chief Executive
Unit #602 Officer of Empire Federal Savings
St. Petersburg, FL 33706 Bank of America and Banc PLUS
Age: 60 Savings Association, former Chairman
of the Board, President and Chief
Executive Officer of Northeast
Savings. Former Director of ISFA
(the owner of INVEST, a national
securities brokerage service
designed for banks and thrift
institutions).
Frank J. Fabozzi Trustee Consultant. Editor of THE JOURNAL OF
858 Tower View Circle PORTFOLIO MANAGEMENT and Adjunct
New Hope, PA 18938 Professor of Finance at the School
Age: 49 of Management at Yale University.
Director, Guardian Mutual Trusts
Group. Author and editor of several
books on fixed income portfolio
management. Visiting Professor of
Finance and Accounting at the Sloan
School of Management, Massachusetts
Institute of Technology from 1986 to
August 1992.
Laurence D. Fink* Trustee Chairman and Chief Executive Officer
Age: 45 of BlackRock Financial Management,
Inc. Formerly a Managing Director of
The First Boston Corporation, member
of its Management Committee, co-head
of its Taxable Fixed Income Division
and head of its Mortgage and Real
Estate Products Group. Currently,
Chairman of the Board and Director
of each of BlackRock's Trusts and
Anthracite Capital, Inc. and as
Director of BlackRock Trust
Investors I, BlackRock Trust
Investors II, BlackRock Trust
Investors III, BlackRock Asset
Investors (collectively, "BAI") and
BlackRock MQE Investors, Trustee of
New York University Medical Center,
Dwight Englewood School and National
Outdoor Leadership School and
Phoenix House. A Director of VIMRx
Pharmaceuticals, Inc. and Innovir
Laboratories, Inc.
James Grosfeld Trustee Consultant/Investor. Director of
20500 Civic Center Drive BlackRock Trust Investors I,
Suite 3000 BlackRock Trust Investors II,
Southfield, MI 48076 BlackRock Trust Investors III and
Age: 60 BlackRock Asset Investors
(collectively, "BAI"). Formerly
Chairman of the Board and Chief
Executive Officer of Pulte
Corporation (homebuilding and
mortgage banking and finance) (May
1974-April 1990).
James Clayburn Trustee Dean Emeritus of The John E.
LaForce, Jr. Anderson Graduate School of
P.O. Box 1595 Management, University of California
Pauma Valley, CA 92061 since July 1, 1993. Director, Eli
Age: 69 Lilly and Company (pharmaceuticals),
Imperial Credit Industries (mortgage
banking), Jacobs Engineering Group,
Inc., Rockwell International
Corporation, Payden & Rygel
Investment Trust (mutual Trust),
Provident Investment Counsel Trusts
(investment companies), Timken
Company (roller bearing and steel),
Motor Cargo Industries
(transportation). Acting Dean of The
School of Business, Hong Kong
University of Science and Technology
1990-1993. From 1978 to September
1993, Dean of The John E. Anderson
Graduate School of Management,
University of California.
Walter F. Mondale Trustee Partner, Dorsey & Whitney, a law
220 South Sixth Street firm (December 1996-, September
Minneapolis, MN 55402 1987-August 1993) Formerly U.S.
Age: 70 Ambassador to Japan (1993-1996).
Formerly Vice President of the
United States, U.S. Senator and
Attorney General of the State of
Minnesota. 1984 Democratic Nominee
for President of the United States.
Ralph L. Schlosstein* Trustee President of BlackRock Financial
Age: 47 and Management, Inc. Formerly a Managing
President Director of Lehman Brothers, Inc.
and co-head of its Mortgage and
Savings Institutional Group.
Currently President of each of
BlackRock's Trusts. Trustee of
Denison University and New Visions
for Public Education in New York
City. A Director of the Pulte
Corporation and a member of the
Visiting Board of Overseers of the
John F. Kennedy School of Government
at Harvard University.
Dennis Schaney Vice Managing Director of BlackRock
Age: 41 President and Head of the High Yield Team. From
June 1989 to February 1998 Managing
Director at Merrill Lynch in the
Global Fixed Income Research and
Economics Department.
Keith T. Anderson Vice Managing Director of BlackRock. From
Age: 39 President February 1987 to April 1988 Vice
President at The First Boston
Corporation in the Fixed Income
Research Department. Previously Vice
President and Senior Portfolio
Manager at Criterion Investment
Management Company (now
Nicholas-Applegate).
Henry Gabbay Treasurer Managing Director and Chief
Age: 50 Operating Officer of BlackRock. From
September 1984 to February 1989 Vice
President at The First Boston
Corporation.
Robert S. Kapito Vice Managing Director and Vice Chairman
Age: 41 President of BlackRock. Formerly Vice
President at The First Boston
Corporation in the Mortgage Products
Group.
James Kong Assistant Managing Director of BlackRock. From
Age: 37 Treasurer April 1987 to April 1989 Assistant
Vice President at The First Boston
Corporation in the CMO/ABO
Administration Department.
Previously affiliated with
Deloittee, Haskins & Sells (now
Deloitte & Touche LLP).
Karen H. Sabath Secretary Managing Director of BlackRock. From
Age: 32 June 1986 to July 1988 Associate at
The First Boston Corporation in the
Mortgage Finance Department. From
August 1988 to December 1992
Associate Vice President of the
Adviser.
Richard Shea, Esq. Vice Director of BlackRock. From December
Age: 38 President/ 1988 to February 1993 Associate Vice
Tax President and Tax Counsel at
Prudential Securities Incorporated.
From August 1984 to December 1988
Senior Tax Specialist at Laventhol &
Horwath.
The address of each officer of the Trust is 345 Park Avenue, New York, New
York 10154.
Prior to this offering, all of the outstanding Shares of the Trust
were owned by BlackRock.
No officer or employee of the Trust receives any compensation from
the Trust for serving as an officer or Trustee of the Trust. The Trust pays
each Trustee who is not an "interested person" of the Trust (as defined in
the Investment Company Act) $______ per annum (and an additional $_____ for
the Chairman of the Board of Trustees of the Trust). In addition, the Trust
pays each Trustee who is not an "interested person" of the Trust (as
defined in the Investment Company Act) $_____ per Board meeting attended,
plus $______ per Audit Committee meeting attended, and reimburses each
Trustee who is not an "interested person" of the Trust (as defined in the
Investment Company Act) for travel and out-of-pocket expenses.
For the fiscal year ended December 31, 1997, the aggregate amount of
fees and expenses received by each current Trustee of the Trust and all
other funds in the BlackRock Family of Funds for which such person is a
Board member were as follows:
Aggregate Total Compensation from the
Compensation Trust and Fund Complex
Name of Board Member From Trust Paid to Board Member*
- -------------------- ------------ ---------------------------
Andrew R. Brimmer $ 160,000
Richard E. Cavanagh $ 160,000
Kent Dixon $ 160,000
Frank J. Fabozzi $ 160,000
James Grosfeld $ 160,000
James Clayborne LaForce, Jr. $ 160,000
Walter F. Mondale $ 140,000
- ---------
*The BlackRock Family of Funds consists of 35 open-end funds and 21 closed-
end funds.
PORTFOLIO TRANSACTIONS
BlackRock is responsible for decisions to buy and sell securities for
the Trust, the selection of brokers and dealers to effect the transactions
and the negotiation of prices and any brokerage commissions. The securities
in which the Trust invests are traded principally in the over-the-counter
market. In the over-the-counter market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a mark-up to the dealer. Securities purchased in underwritten
offerings generally include, in the price, a fixed amount of compensation
for the manager(s), underwriter(s) and dealer(s). The Trust may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. Purchases and sales of bonds on
a stock exchange are effected through brokers who charge a commission for
their services.
BlackRock is responsible for effecting securities transactions of the
Trust and will do so in a manner deemed fair and reasonable to Shareholders
of the Trust and not according to any formula. BlackRock's primary
considerations in selecting the manner of executing securities transactions
for the Trust will be prompt execution of orders, the size and breadth of
the market for the security, the reliability, integrity and financial
condition and execution capability of the firm, the size of and difficulty
in executing the order, and the best net price. There may be many instances
when, in the judgment of BlackRock, more than one firm can offer comparable
execution services. In selecting among such firms, consideration will be
given to those firms which supply research and other services in addition
to execution services. However, it is not the policy of BlackRock, absent
special circumstances, to pay higher commissions to a firm because it has
supplied such services.
BlackRock is able to fulfill its obligations to furnish a continuous
investment program to the Trust without receiving such information from
brokers; however, it considers access to such information to be an
important element of financial management. Although such information is
considered useful, its value is not determinable, as it must be reviewed
and assimilated by BlackRock, and does not reduce BlackRock's normal
research activities in rendering investment advice under the Advisory
Agreement. It is possible that BlackRock's expenses could be materially
increased if it attempted to purchase this type of information or generate
it through its own staff.
One or more of the other accounts which BlackRock manages may own
from time to time the same investments as the Trust. Investment decisions
for the Trust are made independently from those of such other accounts;
however, from time to time, the same investment decision may be made for
more than one company or account. When two or more companies or accounts
seek to purchase or sell the same securities, the securities actually
purchased or sold will be allocated among the companies and accounts on a
good faith equitable basis by BlackRock in its discretion in accordance
with the accounts' various investment objectives. In some cases, this
system may adversely affect the price or size of the position obtainable
for the Trust. In other cases, however, the ability of the Trust to
participate in volume transactions may produce better execution for the
Trust. It is the opinion of the Trust's Board of Trustees that this
advantage, when combined with the other benefits available due to
BlackRock's organization, outweighs any disadvantages that may be said to
exist from exposure to simultaneous transactions.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, under normal market conditions, it is not the Trust's policy to
engage in transactions with the objective of seeking profits from
short-term trading. The portfolio turnover rate is expected to vary from
year to year. BlackRock will monitor the Trust's tax status under the Code
during periods in which the Trust's annual turnover rate exceeds 100%.
Higher portfolio turnover (100% or more) results in increased Trust
expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on the reinvestment in
other securities. To the extent that increased portfolio turnover results
in sales at a profit of securities held less than three months, the Trust's
ability to qualify as a "regulated investment company" under the Code may
be affected.
DETERMINATION OF NET ASSET VALUE
The Trust's investments are valued after the close of business on the
New York Stock Exchange no less frequently than Thursday of each week
(except where such Thursday is not a business day, in which case the first
business day immediately preceding such Thursday) and the last business day
of each month, using available market quotations or at fair value.
Substantially all of the Trust's fixed-income investments (excluding
short-term investments) are valued by one or more independent pricing
services (the "Service") approved by the Board of Trustees. Securities
valued by the Service for which quoted bid prices in the judgment of the
Service are readily available and are representative of the bid side of the
market are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments valued by the Service are carried at fair
value as determined by the Service, based on methods which include
consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions. Short-term investments are not valued by the
Service and are valued at the mean price or yield equivalent for such
securities or for securities of comparable maturity, quality and type as
obtained from market makers. Other investments that are not valued by the
Service are valued at the last sales price for securities traded primarily
on an exchange or the national securities market or otherwise at the
average of the most recent bid and asked prices. Bid price is used when no
ask price is available. Any assets or liabilities initially expressed in
terms of foreign currency will be translated into U.S. dollars at the
midpoint of the New York interbank market spot exchange rate as quoted on
the day of such translation by the Federal Reserve Bank of New York or, if
no such rate is quoted on such date, at the exchange rate previously quoted
by the Federal Reserve Bank of New York or at such other quoted market
exchange rate as may be determined to be appropriate by BlackRock. Expenses
and fees, including the management fee (reduced by the expense limitation,
if any), are accrued weekly and taken into account for the purpose of
determining the net asset value of the Trust's Shares.
Options, futures contracts and options thereon which are traded on
exchanges are valued at their last sale or settlement price as of the close
of the exchanges or, if no sales are reported, at the average of the quoted
bid and ask prices as of the close of the exchange. Portfolio securities
underlying listed call options will be valued at their market price and
reflected in net assets accordingly. Premiums received on call options
written by the Trust will be included in the liability section of the
financial statements as a deferred credit and subsequently adjusted
(marked-to-market) to the current market value of the option written.
Any assets or liabilities initially expressed in terms of foreign
currency will be translated into U.S. dollars at the prevailing rates of
exchange or, if no such rate is quoted on such date, at the exchange rate
utilized on the previous business day or at such other quoted market
exchange rate as may be determined to be appropriate by BlackRock. Expenses
and fees, including the Management Fee, are accrued weekly and taken into
account for the purpose of determining the net asset value of the Shares.
Illiquid securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by
the Service, are valued at fair value as determined in good faith by the
Board of Trustees. The Board will review the method of valuation on a
current basis. In making their good faith valuation of illiquid securities,
the Board members generally will take the following factors into
consideration: illiquid securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Board if
it believes that the discount no longer reflects the value of the illiquid
securities. Illiquid securities not of the same class as securities for
which a public market exists usually will be valued initially at cost. Any
subsequent adjustment from cost will be based upon considerations deemed
relevant by the Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS AND DISTRIBUTIONS
It is the Trust's present policy, which may be changed by the Board
of Trustees, to make monthly distributions of its net investment income.
All net realized capital gains, if any, either will be distributed to the
Trust's Shareholders at least annually or will be retained by the Trust,
and subject to Trust-level associated tax liabilities thereon. As a result
of the Trust's ability to invest in zero coupon securities and pay-in-kind
bonds, the Trust expects to make distributions of net investment income in
amounts greater than the total amount to cash actually received in order to
satisfy certain requirements under current federal income tax law. See
"Taxes." TrustThe Trust may change the foregoing distribution policy if its
experience indicates, or its Board of Trustees for any reason determines,
that changes are desirable. See "Taxes."
Under the Investment Company Act, the Trust is not permitted to incur
indebtedness unless after such incurrence the Trust has an asset coverage
of at least 300% of the aggregate outstanding principal balance of
indebtedness. Additionally, under the Investment Company Act, the Trust may
not declare any dividend or other distribution upon any class of its
capital shares, or purchase any such capital shares, unless the aggregate
indebtedness of the Trust has, at the time of the declaration of any such
dividend or distribution or at the time of any such purchase, an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be. While any preferred
shares are outstanding, the Trust may not declare any cash dividend or
other distribution on its Shares, unless at the time of such declaration,
(1) all accumulated preferred stock dividends have been paid and (2) the
net asset value of the Trust's portfolio (determined after deducting the
amount of such dividend or other distribution) is at least 200% of the
liquidation value of the outstanding preferred shares (expected to be equal
to the original purchase price per share plus any accumulated and unpaid
dividends thereon). In addition to the limitations imposed by the
Investment Company Act as described in this paragraph, certain lenders may
impose additional restrictions on the payment of dividends or distributions
on the Trust's Shares in the event of a default on the Trust's borrowings.
Any limitation on the Trust's ability to make distributions on its Shares
could in certain circumstances impair the ability of the Trust to maintain
its qualification for taxation as a regulated investment company. See
"Other Investment Practices-Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning
the manner in which dividends and distributions to holders of Shares may be
automatically reinvested in Shares of the Trust. Dividends and
distributions may be taxable to Shareholders whether they are reinvested in
Shares of the Trust or received in cash.
The Trust expects that it will commence paying dividends within 60
days of the date of this Prospectus.
TAXES
The following discussion is a general summary of certain U.S. federal
income tax considerations relating to the Trust and to the acquisition,
ownership and disposition of Shares. The discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations and rulings now in effect, all of which are subject to change,
possibly retroactively. This summary does not purport to discuss all the
income tax consequences applicable to the Trust or to investors that may be
subject to special tax rules, such as banks, tax-exempt organizations,
insurance companies, dealers in securities or currencies, persons that will
hold the Shares as part of an integrated investment (including a
"straddle") comprised of Shares and one or more other positions, or persons
having a "functional currency" other than the U.S. dollar. Investors
considering the purchase of Shares should consult their own tax advisors
regarding the application of U.S. federal income tax laws to their
particular situations, as well as any tax consequences arising under the
laws of any state, local, or foreign taxing jurisdiction.
The Trust intends to qualify and to elect to be treated as a
regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended (the "Code"). For each taxable year that the Trust so
qualifies, the Trust (but not its Shareholders) will be relieved of federal
income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain
and net gains from certain foreign currency transactions) and net capital
gain that is distributed to its Shareholders.
In order to qualify for treatment as a RIC under the Code, the Trust
must make an election to be so treated and must distribute to its
Shareholders for each taxable year at least 90% of its investment company
taxable income ("Distribution Requirement") and must meet several
additional requirements. These requirements include the following: (1) the
Trust must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) at the close of each quarter of the
Trust's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities
of other RICs and other securities that are limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Trust's
total assets and does not constitute more than 10% of the voting securities
of such issuer; and (3) at the close of each quarter of the Trust's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of
other RICs) of any one issuer.
The Trust will be subject to a non-deductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31st of that year, plus
certain other amounts. For these purposes, any such income retained by the
Trust, and on which it pays federal income tax, will be treated as having
been distributed.
The Trust may acquire zero coupon or other securities issued with
original issue discount. As the holder of such securities, the Trust must
include in its gross income the original issue discount that accrues on the
securities during the taxable year, even if it receives no corresponding
payment on the securities during the year. The Trust also must include in
its gross income each year any "interest" distributed in the form of
additional securities on payment-in-kind securities. Because the Trust
annually must distribute substantially all of its investment company
taxable income, including any accrued original issue discount and other
non-cash income, to satisfy the distribution requirement imposed on RICs
and to avoid imposition of the Excise Tax, the Trust may be required in a
particular year to distribute as a dividend an amount that is greater than
the total amount of cash it actually receives. Those distributions will be
made from the Trust's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Trust may realize capital gains or
losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain.
The use of certain Strategic Transactions, such as selling (writing)
and purchasing options and futures and entering into forward currency
contracts, involves complex rules that will determine for federal income
tax purposes the character and timing of recognition of the gains and
losses the Trust realizes in connection therewith. These rules also may
require the Trust to "mark to market" (that is, treat as sold for their
fair market value) at the end of each taxable year certain positions in its
portfolio, which may cause the Trust to recognize income or gain without
receiving cash with which to make distributions necessary to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax.
Recently enacted legislation included constructive sale provisions
that generally will apply if the Trust either (1) holds an appreciated
financial position with respect to stock, certain debt obligations, or
partnership interests ("appreciated financial position") and then enters
into a short sale, futures, forward, or offsetting notional principal
contract (collectively, a "Contract") respecting the same or substantially
identical property or (2) holds an appreciated financial position that is a
Contract and then acquires property that is the same as, or substantially
identical to, the underlying property. In each instance, with certain
exceptions, the Trust generally will be taxed as if the appreciated
financial position were sold at its fair market value on the date the Trust
enters into the financial position or acquires the property, respectively.
Transactions that are identified hedging or straddle transactions under
other provisions of the Code can be subject to the constructive sale
provisions.
Income from foreign currencies, and income from transactions in
options, futures and forward currency contracts derived by the Trust with
respect to its business of investing in securities or foreign currencies,
will be treated as qualifying income under the Income Requirement. Under
section 988 of the Code, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain
other gains or losses attributable to currency exchange rate fluctuations
are typically treated as ordinary income or loss. Such income or loss may
increase or decrease (or possibly eliminate) the Trust's income available
for distribution. If, under the rules governing the tax treatment of
foreign currency gain and losses, the Trust's income available for
distribution is decreased or eliminated, all or a portion of the dividends
declared by the Trust may be treated for federal income tax purposes as a
return of capital or, in some circumstances, as capital gain. Generally, a
Shareholder's tax basis in Trust Shares will be reduced to the extent that
an amount distributed to such Shareholder is treated as a return of
capital.
Income received and gains realized by the Trust from investments in
foreign securities may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions that would reduce its
yield and/or total return thereon. Such taxes will not be deductible or
creditable by Shareholders. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes
Dividends from the Trust's investment company taxable income (whether
received in cash or reinvested in additional Trust Shares) generally are
taxable to its Shareholders as ordinary income to the extent of the Trust's
earnings and profits. Distributions of the Trust's net capital gain
("capital gains dividends"), whether received in cash or reinvested in
additional Trust Shares, when designated as such, are taxable to
Shareholders as long-term capital gain, regardless of how long they have
held their Trust Shares. See below for a summary of the tax rates
applicable to capital gains dividends. A participant in the Automatic
Dividend Reinvestment Plan will be treated as having received a
distribution in the amount of the cash used to purchase Shares on his or
her behalf, including a pro rata portion of the brokerage fees incurred by
the Transfer Agent. Distributions by the Trust to its Shareholders in any
year that exceed the Trust's earnings and profits generally may be applied
by each Shareholder against his or her basis for the Shares and will be
taxable at capital gains rates (assuming such Shares are held as a capital
asset) to any Shareholder only to the extent the distributions to the
Shareholder exceed the Shareholder's basis for his or her Shares. See below
for a discussion of capital gains rates. The Trust will notify its
Shareholders following the end of each calendar year of the amounts of
dividends and capital gain distributions paid (or deemed paid) that year.
Dividends and other distributions declared by the Trust in October,
November or December of any year and payable to Shareholders of record on a
date in any of those months will be deemed to have been paid by the Trust
and received by the Shareholders on December 31st of that year if the
distributions are paid by the Trust during the following January.
Accordingly, those distributions will be taxed to Shareholders for the year
in which that December 31st falls.
An investor should also be aware that, if Shares are purchased
shortly before the record date for any dividend or other distribution, the
investor will pay full price for the Shares and will receive some portion
of the purchase price back as a taxable distribution.
The Trust may elect in the future to retain net realized long-term
capital gains and pay corporate income tax thereon. In such event, the
Trust would most likely make an election which would require each
shareholder of record on the last day of the Trust's taxable year to
include in income for tax purposes his proportionate share of the Trust's
undistributed net realized long-term capital gains. If such an election is
made, each shareholder would be entitled to credit his proportionate share
of the tax paid by the Trust against his Federal income tax liability and
to claim a refund to the extent that the credit exceeds such liability. In
addition, the shareholder would be entitled to increase the basis of his
Shares for Federal tax purposes by an amount equal to 66% of his
proportionate share of the Trust's undistributed net realized long-term
capital gains.
Upon the sale or exchange of Shares (including a sale pursuant to a
Share repurchase or tender offer by the Trust), a Shareholder generally
will recognize a taxable gain or loss equal to the difference between his
or her adjusted basis in the Shares and the amount received. Any such gain
or loss will be treated as a capital gain or loss if the Shares are capital
assets in the Shareholder's hands and will be long-term capital gain or
loss if the Shares have been held for more than one year. See below for a
discussion of the tax rates applicable to capital gains. Any loss
recognized on a sale or exchange of Shares that were held for six months or
less will be treated as long-term, rather than short-term, capital loss to
the extent of any capital gain distributions previously received thereon. A
loss recognized on a sale or exchange of Shares will be disallowed to the
extent those Shares are replaced by other Shares within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition
of the Shares (which could occur, for example, as a result of participation
in the Automatic Dividend Reinvestment Plan). In that event, the basis of
the replacement Shares will be adjusted to reflect the disallowed loss.
Under recently enacted legislation, the maximum tax rates applicable
to net capital gains recognized by individuals and other non-corporate
taxpayers are the same as ordinary income rates for capital assets held for
one year or less and 20% [(10% for taxpayers in the 15% marginal tax
bracket)] for capital assets held for more than one year. The maximum
long-term capital gains rate for corporations remains at 35%. The tax rates
for capital gains under the 1997 Tax Act described above apply to
distributions of capital gains dividends by RICs such as the Trust as well
as to sales and exchanges of shares in RICs such as the Trust.
The Trust is required to withhold 31% of all dividends, capital gains
dividends and repurchase proceeds payable to any individual Shareholders
and certain other non-corporate Shareholders who do not provide the Trust
with a correct taxpayer identification number. The Trust is also required
to withhold 31% of all dividends and capital gain dividends paid to such
Shareholders who otherwise are subject to backup withholding.
The foregoing is only a brief summary of some of the important
federal income tax considerations generally affecting the Trust and its
Shareholders. There may be other federal, state, local or foreign tax
considerations applicable to a particular investor. Prospective investors
are urged to consult their tax advisers regarding the specific federal
income tax consequences of purchasing, holding and disposing of Shares, as
well as the effects of state, local and foreign tax laws and any proposed
tax law changes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Trust's Automatic Dividend Reinvestment Plan (the
"Plan"), unless a Shareholder elects to receive cash, all dividend and
capital gains distributions will be automatically reinvested by
________________________ as agent for Shareholders in administering the
Plan (the "Plan Agent") in additional Shares of the Trust. Shareholders who
elect not to participate in the Plan will receive all dividends and
distributions in cash paid by check mailed directly to the Shareholder of
record (or, if the Shares are held in street or other nominee name, then to
such nominee) by ________________, as dividend disbursing agent. Plan
participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to________________, as dividend disbursing agent, at the
address set forth below. Participation in the Plan is completely voluntary
and may be terminated or resumed at any time without penalty by written
notice if received by the Plan Agent not less than ten days prior to any
dividend record date; otherwise such termination will be effective with
respect to any subsequently declared dividend or distribution.
Whenever the Trust declares an ordinary income dividend or a capital
gain dividend (collectively referred to in this section as "dividends")
payable either in shares or in cash, non-participants in the Plan will
receive cash, and participants in the Plan will receive the equivalent in
Shares. The Shares will be acquired by the Plan Agent for the participant's
account, depending upon the circumstances described below, either (i)
through receipt of additional unissued but authorized Shares from the Trust
("newly issued shares") or (ii) by purchase of outstanding Shares on the
open market ("open-market purchases") on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per Share is equal to or
less than the market price per Share plus estimated brokerage commissions
(such condition being referred to herein as "market premium"), the Plan
Agent will invest the dividend amount in newly issued Shares on behalf of
the participant. The number of newly issued Shares to be credited to the
participant's account will be determined by dividing the dollar amount of
the dividend by the net asset value per share on the date the Shares are
issued, provided that the maximum discount from the then current market
price per Share on the date of issuance may not exceed 5%. If on the
dividend payment date the net asset value per Share is greater than the
market value (such condition being referred to herein as "market
discount"), the Plan Agent will invest the dividend amount in Shares
acquired on behalf of the participants in open-market purchases.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next date on
which the Shares trade on an "ex-dividend" basis or in no event more than
30 days after the dividend payment date (the "last purchase date") to
invest the dividend amount in Shares acquired in open-market purchases. It
is contemplated that the Trust will pay monthly income dividends.
Therefore, the period during which open-market purchases can be made will
exist only from the payment date on the dividend through the date before
the next "ex-dividend" date, which typically will be approximately ten
days. If, before the Plan Agent has completed its open-market purchases,
the market price of a Share exceeds the net asset value per Share, the
average per Share purchase price paid by the Plan Agent may exceed the net
asset value of the Trust's Shares, resulting in the acquisition of fewer
Shares than if the dividend had been paid in newly issued Shares on the
dividend payment date. Because of the foregoing difficulty with respect to
open-market purchases, the Plan provides that if the Plan Agent is unable
to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will cease making open-market purchases
and will invest the uninvested portion of the dividend amount in newly
issued Shares at the close of business on the last purchase date.
The Plan Agent maintains all Shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts,
including information needed by Shareholders for tax records. Shares in the
account of each Plan participant will be held by the Plan Agent on behalf
of the Plan participant, and each Shareholder proxy will include those
Shares purchased or received pursuant to the Plan. The Plan Agent will
forward all proxy solicitation materials to participants and vote proxies
for shares held pursuant to the Plan in accordance with the instructions of
the participants.
In the case of Shareholders such as banks, brokers or nominees which
hold Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Shares certified from
time to time by the record Shareholder's name and held for the account of
beneficial owners who are to participate in the Plan.
There will be no brokerage charges with respect to Shares issued
directly by the Trust as a result of dividends or capital gains
distributions payable either in Shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open-market purchases in connection with
the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not
available to Shareholders not participating in the Plan. If the market
price plus commissions of the Trust's Shares is above the net asset value,
participants in the Plan will receive Shares of the Trust at less than they
could otherwise purchase them and will have Shares with a cash value
greater than the value of any cash distribution they would have received on
their Shares. If the market price plus commissions is below the net asset
value, participants will receive distributions in Shares with a net asset
value greater than the value of any cash distribution they would have
received on their Shares. However, there may be insufficient Shares
available in the market to make distributions in Shares at prices below the
net asset value. Also, since the Trust does not redeem its Shares, the
price on resale may be more or less than the net asset value.
See "Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Trust reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence concerning the Plan should be directed to the Plan
Agent at _____________________________________________.
CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING AGENT
____________________________, will act as the Trust's Custodian. The
Custodian may employ sub-custodians outside the U.S. approved by the Board
of Trustees in accordance with regulations under the Investment Company
Act. __________________ will act as the Trust's Transfer and Dividend
Disbursing Agent.
DESCRIPTION OF SHARES
The Trust is a newly organized unincorporated business trust under
the laws of Delaware pursuant to an Agreement and Trust Agreement (the
"Trust Agreement") dated August 10, 1998. The Trust is authorized to issue
an unlimited number of shares of beneficial interest, par value $.001 per
share ("Shares"). Each share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Trust shares are of one class and have equal rights as to
dividends and liquidation. The Trust may reclassify Shares as preferred
shares, with such rights and designations as the Board of Trustees shall
determine. Shares have no preemptive, subscription or conversion rights and
are freely transferable. The Trust will send annual and semi-annual
financial statements to all its Shareholders.
The Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed
by the Trust or a Trustee. The Trust Agreement provides for indemnification
from the Trust's property for all losses and expenses of any shareholder
held personally liable for the obligations of the Trust. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to
meet its obligations, a possibility which management believes is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying
such liability will be entitled to reimbursement from the general assets of
the Trust. The Trust intends to conduct its operations in such a way so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Trust has no present intention of offering additional Shares,
except as described herein and under the Automatic Dividend Reinvestment
Plan, as it may be amended from time to time. See "Automatic Dividend
Reinvestment Plan." Other offerings of its Shares, if made, will require
approval of the Trust's Board of Trustees. Any additional offering will not
be sold at a price per Share below the then current net asset value
(exclusive of underwriting discounts and commissions) except in connection
with an offering to existing Shareholders or with the consent of a majority
of the Trust's outstanding Shares.
The Trust intends to apply to list the Shares on the New York Stock
Exchange under the symbol "BHY."
Anti-Takeover Provisions
The Trust's Agreement and Declaration of Trust (the "Trust
Agreement") includes provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Trust or to
change the composition of its Board of Trustees, and could have the effect
of depriving Shareholders of an opportunity to sell their Shares at a
premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Trust. These provisions may have the
effect of discouraging attempts to acquire control of the Trust, which
attempts could have the effect of increasing the expenses of the Trust and
interfering with the normal operation of the Trust. The Board of Trustees
is divided into three classes, with the terms of one class expiring at each
annual meeting of Shareholders. At each annual meeting, one class of
Trustees is elected to a three-year term. This provision could delay for up
to two years the replacement of a majority of the Board of Trustees. A
Trustee may be removed from office only for cause [by a written instrument
signed by at least two thirds of the remaining Trustees] or by a vote of
the holders of at least two-thirds of the Shares.
In addition, the Trust Agreement requires the favorable vote of the
holders of at least 75% of the outstanding Shares of each class of the
Trust, voting as a class, then entitled to vote to approve, adopt or
authorize certain transactions with 5%-or-greater holders of a class of
Shares and their associates, unless the Board of Trustees shall by
resolution have approved a memorandum of understanding with such holders,
in which case normal voting requirements would be in effect. For purposes
of these provisions, a 5%-or-greater holder of a class of Shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any
class of beneficial interest of the Trust. The transactions subject to
these special approval requirements are: (i) the merger or consolidation of
the Trust or any subsidiary of the Trust with or into any Principal
Shareholder; (ii) the issuance of any securities of the Trust to any
Principal Shareholder for cash (except pursuant to the Automatic Dividend
Reinvestment Plan); (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Principal Shareholder
(except assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purpose of such computation all assets
sold, leased or exchanged in any series of similar transactions within
twelve-month period); or (iv) the sale, lease or exchange to the Trust or
any subsidiary thereof, in exchange for securities of the Trust, of any
assets of any Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000, aggregating for the purposes of such
computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board of Trustees has determined that provisions with respect to
the Board of Trustees and the 75% voting requirements described above (and
the requirements relating to conversion to an open-end Trust described
below), which voting requirements are greater than the minimum requirements
under Delaware law or the Investment Company Act, are in the best interest
of Shareholders generally. Reference should be made to the Trust Agreement
on file with the SEC for the full text of these provisions.
Closed-end Trust Structure
The Trust has been organized as a closed-end management investment
company (commonly referred to as a closed-end fund). Closed-end funds
differ from open-end management investment companies (commonly referred to
as mutual funds) in that closed-end funds generally list their shares for
trading on a securities exchange and do not redeem their shares at the
option of the shareholder. By comparison, mutual funds issue securities
redeemable at net asset value at the option of the shareholder and
typically engage in a continuous offering of their shares. Mutual funds are
subject to continuous asset in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds generally can stay more
fully invested in securities consistent with the closed-end fund's
investment objectives and policies. In addition, in comparison to open-end
funds, closed-end funds have greater flexibility in the employment of
financial leverage and in the ability to make certain types of investments,
such as investments in illiquid securities. However, shares of closed-end
funds frequently trade at a discount to their net asset value.
In recognition of the possibility that the Shares might trade at a
discount to net asset value and that any such discount may not be in the
interests of Shareholders, the Trust's Board of Trustees might consider
open market repurchases or tender offers for Shares at net asset value.
There can be no assurance that the Board of Trustees will decide to
undertake any of these actions or that, if undertaken, such actions would
result in the Shares trading at a price equal or close to net asset value
per Share. The Board of Trustees might also consider the conversion of the
Trust to an open-end mutual fund. The Board of Trustees believes, however,
that the closed-end structure is desirable, given the Trust's investment
objective and policies. Investors should assume, therefore, that it is
unlikely that the Board of Trustees would vote to convert the Trust to an
open-end investment company.
Conversion to Open-End Trust
The Trust may be converted to an open-end investment company at any
time by an amendment to the Trust Agreement. The Trust Agreement provides
that such an amendment would require the approval of two-thirds of the
Trust's outstanding shares (including any preferred shares) entitled to
vote on the matter, voting as a single class (or a majority of such shares
if the amendment previously was approved, adopted or authorized by at least
two-thirds of the total number of Trustees) and, assuming the Trust has
issued preferred shares, by the affirmative vote of a majority of
outstanding shares, voting as a separate class. Such a vote also would
satisfy a separate requirement in the Investment Company Act that the
change be approved by the shareholders. If approved in the foregoing
manner, conversion of the Trust could not occur until 90 days after the
Shareholders' meeting at which such conversion was approved and would also
require at least 30 days' prior notice to all Shareholders. Conversion of
the Trust to an open-end investment company would require the redemption
of any outstanding preferred shares and any indebtedness not constituting
bank loans, which could eliminate or alter the leveraged capital structure
of the Trust with respect to the Shares. Following any such conversion, it
is also possible that certain of the Trust's investment policies and
strategies would have to be modified to assure sufficient portfolio
liquidity. In particular, the Trust would be required to maintain its
portfolio such that not more than 15% of its net assets would be invested
in illiquid securities, or other illiquid assets, or securities which are
restricted as to resale. Such requirement could cause the Trust to dispose
of portfolio securities or other assets at a time when it is not
advantageous to do so, and could adversely affect the ability of the Trust
to meet its investment objectives. In the event of conversion, the Shares
would cease to be listed on the New York Stock Exchange or other national
securities exchanges or market systems. Shareholders of an open-end
investment company may require the company to redeem their shares at any
time (except in certain circumstances as authorized by or under the
Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. The
Trust expects to pay all such redemption requests in cash, but intends to
reserve the right to pay redemption requests in a combination of cash or
securities. If such partial payment in securities were made, investors may
incur brokerage costs in converting such securities to cash. If the Trust
were converted to an open-end fund, it is likely that new Shares would be
sold at net asset value plus a sales load.
Repurchase of Shares
Shares of closed-end investment companies often trade at a discount
to their net asset values, and the Trust's Shares may likewise trade at a
discount to their net asset value, although it is possible that they may
trade at a premium above net asset value. The market price of the Trust's
Shares will be determined by such factors as relative demand for and supply
of such Shares in the market, the Trust's net asset value, general market
and economic conditions and other factors beyond the control of the Trust.
See "Determination of Net Asset Value." Although the Trust's Shareholders
will not have the right to redeem their Shares, the Trust may take action
to repurchase Shares in the open market or make tender offers for its
Shares at their net asset value. This may have the effect of reducing any
market discount from net asset value.
There is no assurance that, if action is undertaken to repurchase or
tender for Shares, such action will result in the Shares' trading at a
price which approximates their net asset value. Although Share repurchases
and tenders could have a favorable effect on the market price of the
Trust's Shares, it should be recognized that the acquisition of Shares by
the Trust will decrease the total assets of the Trust and, therefore, have
the effect of increasing the Trust's expense ratio. Any Share repurchases
or tender offers will be made in accordance with requirements of the
Securities Exchange Act of 1934, as amended, and the Investment Company
Act.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom
Prudential Securities Incorporated, One New York Plaza, New York, New York,
Merrill Lynch & Co., 250 Vesey Street, New York, New York, PaineWebber
Incorporated and Solomon Smith Barney Inc., 388 Greenwich Street, New York,
New York are acting as representatives (the "Representatives") have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement with the Trust and BlackRock Advisors, Inc. (the
"Underwriting Agreement"), to purchase from the Trust the number of Shares
set forth below opposite their respective names.
Underwriter Number of Shares
----------- ----------------
Prudential Securities Incorporated
Merrill Lynch & Co,
PaineWebber Incorporated
Solomon Smith Barney Inc.
Total ================
The Trust is obligated to sell, and the Underwriters are obligated to
purchase, all of the Shares offered hereby, if any are purchased.
BlackRock (or an affiliate) has agreed from its assets to pay to the
Underwriters out of its own assets compensation in the gross amount of $___
per Share (___% of the Subscription Price per Share) or an aggregate amount
of $___________ ($_________ assuming full exercise of the over-allotment
option) for all Shares covered by this Prospectus. Such payment will be the
legal obligation of BlackRock (or an affiliate) and made out of its own
assets and will not in any way represent an obligation of the Trust or its
Shareholders. The Trust will pay offering expenses of $____________
($____________ if the over-allotment option is exercised in full), which
will be deducted from the total proceeds of the offering. BlackRock
Advisors, Inc. has agreed that it or an affiliate will pay all offering
expenses of the Trust that exceed $0.02 per Share. The Underwriters,
through the Representatives, have advised the Trust that the Underwriters
propose to offer the Shares set forth above at the Subscription Price set
forth on the cover page of this Prospectus, that the Underwriters may allow
a consession of $___ per Share to certain other dealers. After the initial
public offering, the Subscription Price and the concessions may be changed
by the Representatives.
The Trust has granted to the Underwriters an option, exercisable for
[45] days from the date of this Prospectus to purchase up to an additional
Shares at the Subscription Price set forth on the cover page of this
Prospectus. Such option may be exercised at any time or from time to time
during such [45] day period, but no more than three times. The Underwriters
may exercise such option solely for the purpose of covering over-allotments
incurred in the sale of the Shares offered hereby. In the ordinary course
of their businesses, Prudential Securities Incorporated, other Underwriters
and their respective affiliates have in the past engaged, and in the future
may engage, in investment banking and financial transactions with the Trust,
BlackRock and their affiliates. To the extent such option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such
additional Shares as the number set forth next to such Underwriter's name
in the preceding table bears to.
The Trust and BlackRock Advisors, Inc. have each agreed to indemnify
the several Underwriters or to contribute to the losses arising out of
certain liabilities, including liabilities under the Securities Act.
The Representatives have informed the Trust that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
In order to meet the requirements for listing the Shares on the New
York Stock Exchange, the Underwriters have undertaken to sell lots of 100
or more Shares to a minimum of 2,000 beneficial holders. The minimum
investment requirement is 100 Shares (or $1,500).
Prior to this offering there has been no public market for the Shares
or any other securities of the Trust. Consequently, the public offering
price has been determined by negotiation among the Trust, BlackRock
Advisors, Inc. and the Representatives. Prior to completion of this
offering, BlackRock Advisors, Inc. will control the Trust.
In connection with the Offering, certain Underwriters (and selling
group members, if any) and their respective affiliates may engage in
transactions that stabilize, maintain or otherwise affect the market price
of the Shares. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which
such persons may bid for or purchase Shares for the purpose of stabilizing
its market price. The Underwriters may also create a short position for the
account of the Underwriters by selling more Shares in connection with the
Offering than they are committed to purchase from the Trust, and in such
case may purchase Shares in the open market following the completion of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to Shares, by
exercising the Underwriters' over-allotment option referred to previously.
In addition, the Representatives, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangement with the Underwriters whereby
they may reclaim from an Underwriter (or any other Participating
Institution) for the account of the other Underwriters the selling
concession with respect to Shares that are distributed in the Offering but
subsequently purchased by the Representatives for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Shares at a
level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required and, if they are
undertaken, they may be discontinued at any time.
ADDITIONAL INFORMATION
Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Trust's Registration Statement. Each such
statement is qualified in all respects by such reference and the exhibits
and schedules thereto. The Trust's Registration Statement and such exhibits
and schedules may be obtained from the SEC at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the SEC. The SEC maintains a website at HTTP://WWW.SEC.GOV
containing reports, proxy and information statements and other information
regarding registrants, including the Trust, that file electronically with
the SEC. The Trust's Shares have been approved for listing on the NYSE
under the symbol "BHY," subject to official notice of issuance and, as
such, similar information concerning the Trust will be available for
inspection and copy at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
The Trust intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public accountants.
LEGAL OPINIONS
Certain legal matters in connection with the Shares offered hereby
will be passed upon for the Trust and its affiliated entities by Skadden,
Arps, Slate, Meagher & Flom LLP, and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton.
EXPERTS
The statement of assets, liabilities and capital of the Trust
included in this Prospectus has been so included in reliance upon the
report of Deloitte and Touche LLP, independent auditors, and on their
authority as experts in auditing and accounting.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholder of
The BlackRock High Yield Trust
We have audited the accompanying statement of assets and liabilities of The
BlackRock High Yield Trust (the "Trust") as of December __, 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the Trust as of
December __, 1998, in conformity with generally accepted accounting
principles.
December__, 1998
STATEMENT OF ASSETS AND LIABILITIES
Assets:
Cash.......................................................$
Deferred Organizational Expenses (Note 3)...................__________
Total Assets....................................
Liabilities:
Organization Expenses Payable...............................__________
Commitments and Contingencies (Notes 2 and 3)
Net Assets, equivalent to _______ shares of beneficial
interest issued and outstanding, par value $.001,
unlimited authorized shares.............................$==========
Note 1. Organization
The BlackRock High Yield Trust (the "Trust") was organized as a
Delaware business trust on August 10, 1998 and is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940. The Trust has had no operations other than the sale to
BlackRock Advisors, Inc. of _____________ shares of beneficial interest for
$________ on December __, 1998.
Note 2. Agreements
The Trust has entered into an Investment Advisory Agreement with
BlackRock Advisors, Inc.. The Trust will pay BlackRock Advisors, Inc. a
monthly fee at an annual rate of 1.05% of the average weekly value of the
Trust's Managed Assets. The Trust has also entered into an Administration
Agreement with BlackRock Financial Management, Inc. and Prudential
Investments Fund Management, LLC, which provides for payment of a monthly
fee to each of the foregoing at an annual rate of 0.05% of the average
weekly value of the Trust's Managed Assets.
Note 3. Deferred Organization Costs
BlackRock Advisors, Inc. has advanced certain organization and
start-up costs of the Trust and is to be reimbursed by the Trust. On April
3, 1998, Statement of Position 98-5 was issued. This Statement of Position
requires that unamortized organization costs on the Trust's statement of
assets and liabilities be written off, effective for fiscal years beginning
after December 15, 1998. In accordance with Statement of Position 98-5,
these organization and start-up costs will be immediately expensed.
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS
SERVICES:
AAA--Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A--Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB--Bonds rated BB have less near-term vulnerability to default than
other speculative grade debt. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments.
B--Bonds rated B have a greater vulnerability to default but
presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to
default and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, they
are not likely to have the capacity to pay interest and repay principal.
CC--The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC-debt rating.
D--Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and generally are
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, therefore, not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period
of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca-Bonds which are rated Ca present obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
APPENDIX B
GENERAL CHARACTERISTICS AND RISKS
OF STRATEGIC TRANSACTIONS
In order to seek to hedge against changes in the value of its
portfolio securities, the Trust may from time to time engage in certain
hedging and risk management strategies. The Trust will engage in such
activities from time to time in BlackRock's discretion, and may not
necessarily be engaging in such activities when movements in interest rates
that could affect the value of the assets of the Trust occur. The Trust's
ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, applicable regulations of the Commodity Futures
Trading Commission ("CFTC") and the federal income tax requirements
applicable to regulated investment companies.
Put and Call Options on Securities and Indices
The Trust may purchase and sell put and call options on securities
and financial indices. A put option gives the purchaser of the option the
right to sell and the seller the obligation to buy the underlying security
at the exercise price during the option period. Index options are similar
to options on securities except that, rather than taking or making delivery
of securities underlying the option at a specified price upon exercise, an
index option gives the holder the right to receive cash upon exercise of
the option if the level of the index upon which the option is based is
greater, in the case of a call, or less, in the case of a put, than the
exercise price of the option. The purchase of a put option on a debt
security would be designed to protect the Trust's holdings in a security
against a substantial decline in the market value. A call option gives the
purchaser of the option the right to buy and the seller the obligation to
sell the underlying security at the exercise price during the option
period. The purchase of a call option on a security would be intended to
protect the Trust against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call
options that it has purchased, if the option expires without being sold or
exercised, the Trust will experience a loss in the amount of the option
premium plus any related commissions. When the Trust sells put and call
options, it receives a premium as the seller of the option. The premium
that the Trust receives for selling the option will serve as a partial
hedge, in the amount of the option premium, against changes in the value of
the securities in its portfolio. During the term of the option, however, a
covered call seller has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price of the
option if the value of the underlying security increases, but has retained
the risk of loss should the price of the underlying security decline.
Conversely, a secured put seller retains the risk of loss should the market
value of the underlying security decline below the exercise price of the
option, less the premium received on the sale of the option. The Trust is
authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC Options") which are privately negotiated
with the counterparty to such contract. Listed options are issued by the
Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. All put and call options
written by the Trust will be covered.
The Trust's ability to close out its position as a purchaser or
seller of an exchange-listed put or call option is dependent upon the
existence of a liquid secondary market. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange
or OCC to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange
(or in that class or series of options) would cease to exist, although
outstanding options on that exchange that had been listed by the OCC as a
result of trades on that exchange would generally continue to be
exercisable in accordance with their terms. OTC Options are purchased from
or sold to dealers, financial institutions or other counterparties which
have entered into direct agreements with the Trust. With OTC Options, such
variables as expiration date, exercise price and premium will be agreed
upon between the Trust and the counterparty, without the intermediation of
a third party such as the OCC. If the counterparty fails to make or take
delivery of the securities underlying an option it has written, or
otherwise settle the transaction in accordance with the terms of that
option as written, the Trust would lose the premium paid for the option as
well as any anticipated benefit of the transaction. As the Trust must rely
on the credit quality of the counterparty rather than the guarantee of the
OCC, it will only enter into OTC Options with counterparties with the
highest long-term credit ratings, and with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
The hours of trading for options on debt securities may not conform
to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
Forward Currency Contracts
The Trust may enter into forward currency contracts to purchase or
sell foreign currencies for a fixed amount of U.S. dollars or another
foreign currency. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days (term) from the date of the forward currency contract
agreed upon by the parties, at a price set at the time the forward currency
contract is entered into. Forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their
customers.
The Trust may purchase a forward currency contract to lock in the
U.S. dollar price of a security denominated in a foreign currency that the
Trust intends to acquire. The Trust may sell a forward currency contract to
lock in the U.S. dollar equivalent of the proceeds from the anticipated
sale of a security or a dividend or interest payment denominated in a
foreign currency. The Trust may also use forward currency contracts to
shift the Trust's exposure to foreign currency exchange rate changes from
one currency to another. For example, if the Trust owns securities
denominated in a foreign currency and BlackRock believes that currency will
decline relative to another currency, it might enter into a forward
currency contract to sell the appropriate amount of the first foreign
currency with payment to be made in the second currency. The Trust may also
purchase forward currency contracts to enhance income when BlackRock
anticipates that the foreign currency will appreciate in value but
securities denominated in that currency do not present attractive
investment opportunities.
The Trust may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in a foreign
currency. Such a hedge would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values
caused by other factors. The Trust could also hedge the position by
entering into a forward currency contract to sell another currency expected
to perform similarly to the currency in which the Trust's existing
investments are denominated. This type of hedge could offer advantages in
terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. This type of hedge may
result in losses if the currency used to hedge does not perform similarly
to the currency in which the hedged securities are denominated.
The Trust may also use forward currency contracts in one currency or
a basket of currencies to attempt to hedge against fluctuations in the
value of securities denominated in a different currency if BlackRock
anticipates that there will be a correlation between the two currencies.
The cost to the Trust of engaging in forward currency contracts
varies with factors such as the currency involved, the length of the
contract period and the market conditions then prevailing. Because forward
currency contracts are usually entered into on a principal basis, no fees
or commissions are involved. When the Trust enters into a forward currency
contract, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of some or all of any
expected benefit of the transaction.
Secondary markets generally do not exist for forward currency
contracts, with the result that closing transactions generally can be made
for forward currency contracts only by negotiating directly with the
counterparty. Thus, there can be no assurance that the Trust will in fact
be able to close out a forward currency contract at a favorable price prior
to maturity. In addition, in the event of insolvency of the counterparty,
the Trust might be unable to close out a forward currency contract. In
either event, the Trust would continue to be subject to market risk with
respect to the position, and would continue to be required to maintain a
position in securities denominated in the foreign currency or to maintain
cash or liquid assets in a segregated account.
The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change
after the forward currency contract has been established. Thus, the Trust
might need to purchase or sell foreign currencies in the spot (cash) market
to the extent such foreign currencies are not covered by forward currency
contracts. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
Futures Contracts and Options on Futures Contracts
Characteristics. The Trust may purchase and sell futures contracts
and purchase put and call options on such futures contracts traded on
recognized domestic exchanges as a hedge against anticipated interest rate
changes or other market movements and future risk management. The sale of a
futures contract creates an obligation by the Trust, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specified future time for a specified price. Options on futures contracts
are similar to options on securities except that an option on a futures
contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or
sold, the Trust must allocate cash or securities as a deposit payment
("initial margin"). It is expected that the initial margin that the Trust
will pay may range from approximately 1% to approximately 5% of the value
of the instruments underlying the contract. In certain circumstances,
however, such as periods of high volatility, the Trust may be required by
an exchange to increase the level of its initial margin payment.
Additionally, initial margin requirements may be increased in the future
pursuant to regulatory action. An outstanding futures contract is valued
daily and the payment in cash of "variation margin" may be required, a
process known as "marking to the market." Transactions in listed options
and futures are usually settled by entering into an offsetting transaction,
and are subject to the risk that the position may not be able to be closed
if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Trust's use of futures contracts and options on futures
contracts will in all cases be consistent with applicable regulatory
requirements and in particular, the rules and regulations of the CFTC and
will be entered into only for bona fide hedging purposes or other
appropriate risk management and duration management or other appropriate
portfolio strategies. In addition, the Trust may not sell futures contracts
if the value of such futures contracts exceeds the total market value of
the Trust's portfolio securities.
The Trust will not engage in transactions in futures contracts or
options thereon for speculative purposes but only for hedging or to manage
against changes resulting from market conditions in the values of
securities in its portfolio. In addition, the Trust will not enter into a
futures contract or option thereon if, immediately thereafter, the sum of
the amount of its initial deposits and premiums on open contracts and
options would exceed 5% of the Trust's total assets (taken at current
value); provided, however, that in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. Also, when required, a
segregated account of cash or cash equivalents will be maintained and
marked to market in an amount equal to the market value of the contract.
BlackRock reserves the right to comply with such different standards as may
be established from time to time by CFTC rules and regulations with respect
to the purchase and sale of futures contracts and options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate
swaps, caps, floors and collars, and options on securities, indices and
futures contracts sold by the Trust are generally subject to segregation
and coverage requirements established by either the CFTC or the Commission,
with the result that, if the Trust does not hold the instrument underlying
the futures contract or option, the Trust will be required to segregate on
an ongoing basis with its custodian, cash, U.S. Government securities, or
other liquid high grade debt obligations in an amount at least equal to the
Trust's obligations with respect to such instruments. Such amounts will
fluctuate as the market value of the obligations increases or decreases.
The segregation requirement can result in the Trust maintaining positions
it would otherwise liquidate and consequently segregating assets with
respect thereto at a time when it might be disadvantageous to do so.
Strategic Transactions present certain risks. In particular, the
variable degree of correlation between price movements of hedging
instruments and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value
of the Trust's positions. In addition, certain hedging instruments and
markets may not be liquid in all circumstances. As a result, in volatile
markets, the Trust may not be able to close out a transaction in certain of
these instruments without incurring losses substantially greater than the
initial deposit. Although the contemplated use of these instruments should
tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The
ability of the Trust to hedge successfully will depend on BlackRock's
ability to predict pertinent market movements, which cannot be assured.
Finally, the daily variation margin deposit requirements in futures
contracts that the Trust has sold create an ongoing greater potential
financial risk than do options transactions, where the exposure is limited
to the cost of the initial premium and transaction costs paid by the Trust.
Losses due to Strategic Transactions will reduce net asset value.
The Trust's investments in Strategic Transactions may be limited or
affected by certain provisions of the Code.
APPENDIX C
DESCRIPTION OF MORTGAGE-RELATED SECURITIES
Mortgage-Related Securities. Mortgage-related securities are a form
of derivative collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations. These securities may include complex instruments such as
collateralized mortgage obligations, stripped mortgage-backed securities,
mortgage pass-through securities, interests in real estate mortgage
investment conduits ("REMICs"), adjustable rate mortgages, real estate
investment trusts ("REITs"), including debt and preferred stock issued by
REITs, as well as other real estate-related securities. The
mortgage-related securities in which the Trust may invest include those
with fixed, floating or variable interest rates, those with interest rates
that change based on multiples of changes in a specified index of interest
rates and those with interest rates that change inversely to changes in
interest rates, as well as those that do not bear interest.
Government-Agency Securities. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are
guaranteed as to the timely payment of principal and interest by GNMA and
such guarantee is backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities. Mortgage-related securities issued by
the Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the
full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private shareholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate
payment of principal at any time after default on an underlying mortgage,
but in no event later than one year after it becomes payable.
Private Entity Securities. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage
bankers, private mortgage insurance companies and other non-governmental
issuers. Timely payment of principal and interest on mortgage-related
securities backed by pools created by non-governmental issuers often is
supported partially by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies, so that if
the issuers default on their obligations the holders of the security could
sustain a loss. No insurance or guarantee covers the Trust or the price of
the Trust's shares. Mortgage-related securities issued by non-governmental
issuers generally offer a higher rate of interest than government-agency
and government-related securities because there are no direct or indirect
government guarantees of payment.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a multi-class
bond backed by a pool of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie
Mac pass-through certificates, (b) unsecuritized mortgage loans insured by
the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other
mortgage-related securities, or (e) any combination thereof. Each class of
CMOs, often referred to as a "tranche," is issued at a specific coupon rate
and has a stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired substantially
earlier than the stated maturities or final distribution dates. The
principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. One or more tranches
of a CMO may have coupon rates which reset periodically at a specified
increment over an index, such as the London Interbank Offered Rate
("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The
Trust also may invest in inverse floating rate CMOs. Inverse floating rate
CMOs constitute a tranche of a CMO with a coupon rate that moves in the
reverse direction to an applicable index such a LIBOR. Accordingly, the
coupon rate thereon will increase as interest rates decrease. Inverse
floating rate CMOs are typically more volatile than fixed or floating rate
tranches of CMOs. Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes. The effect of the coupon
varying inversely to a multiple of an applicable index creates a leverage
factor. Inverse floaters based on multiples of a stated index are designed
to be highly sensitive to changes in interest rates and can subject the
holders thereof to extreme reductions of yield and loss of principal. The
markets for inverse floating rate CMOs with highly leveraged
characteristics at times may be very thin. The Trust's ability to dispose
of its positions in such securities will depend on the degree of liquidity
in the markets for such securities. It is impossible to predict the amount
of trading interest that may exist in such securities, and therefore the
future degree of liquidity.
Stripped Mortgage-Backed Securities. The Trust also may invest in
stripped mortgage-backed securities. Stripped mortgage-backed securities
are created by segregating the cash flows from underlying mortgage loans or
mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each
investor class receives some interest and some principal. When securities
are completely stripped, however, all of the interest is distributed to
holders of one type of security, known as an interest-only security, or IO,
and all of the principal is distributed to holders of another type of
security known as a principal-only security, or PO. Strips can be created
in a pass-through structure or as tranches of a CMO. The yields to maturity
on IOs and POs are very sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. If the
underlying mortgage assets experience greater than anticipated prepayments
of principal, the Trust may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the yield on POs could be materially
and adversely affected.
Real Estate Investment Trusts. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and
making the REIT a pass-through vehicle for federal income tax purposes. To
meet the definitional requirements of the Code, a REIT must, among other
things, invest substantially all of its assets in interests in real estate
(including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on
loans secured by mortgages on real property, and distribute to shareholders
annually a substantial portion of its otherwise taxable income. REITs are
characterized as equity REITs, mortgage REITs and hybrid REITs. Equity
REITs, which may include operating or finance companies, own real estate
directly and the value of, and income earned by, the REITs depends upon the
income of the underlying properties and the rental income they earn. Equity
REITs also can realize capital gains (or losses) by selling properties that
have appreciated (or depreciated) in value. Mortgage REITs can make
construction, development or long-term mortgage loans and are sensitive to
the credit quality of the borrower. Mortgage REITs derive their income from
interest payments on such loans. Hybrid REITs combine the characteristics
of both equity and mortgage REITs, generally by holding both ownership
interests and mortgage interests in real estate. The value of securities
issued by REITs are affected by tax and regulatory requirements and by
perceptions of management skill. They also are subject to heavy cash flow
dependency, defaults by borrowers or tenants, self-liquidation and the
possibility of failing to qualify for tax-free status under the Code or to
maintain exemption from the Investment Company Act.
Adjustable-Rate Mortgage Loans ("ARMs"). ARMs eligible for inclusion
in a mortgage pool will generally provide for a fixed initial mortgage
interest rate for a specified period of time, generally for either the
first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index. ARMs typically have minimum and maximum rates
beyond which the mortgage interest rate may not vary over the lifetime of
the loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans on real property, including CMO residuals. Other
mortgage-related securities may be equity or debt securities issued by
agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment
banks, partnerships, trusts and special purpose entities of the foregoing.
================================== ==================================
Investors should rely only on the
information contained in this
Prospectus. Neither the Trust, Shares
BlackRock Advisors, Inc. nor any
of the Underwriters have
authorized anyone to provide
investors with different information. THE BLACKROCK
No offer to sell is being made HIGH YIELD TRUST
in any jurisdiction where the offer
for sale is not permitted. All
information contained in this
Prospectus should not be considered
to be accurate as of any other date
than the date of this Prospectus.
----------------------
Prudential Securities Incorporated
----------------------
Merrill Lynch & Co.
PROSPECTUS
Paine Webber Incorporated
----------------------
Salomon Smith Barney
December __, 1998
Until , all underwriters effecting
transactions in these securities,
whether or not participating in this
distribution, may be required to
deliver a Prospectus. This is in
addition to the obligation of dealers
to deliver a Prospectus when acting as
Underwriters and with respect to their
unsold allotments or subscriptions.
================================== ==================================
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
*Part A - Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B - None.
(2) Exhibits:
(a)** Agreement and Declaration of Trust
(b)** By-Laws
(c) Inapplicable
(d)* Form of Specimen Certificate
(e)* Form of Dividend Reinvestment Plan
(f) Inapplicable
(g)* Form of Investment Management and Administration Agreement
(h)* Form of Underwriting Agreement
(i) Inapplicable
(j)* Form of Custodian Agreement
(k) Inapplicable
(l)(i)* Opinion and Consent of Counsel to the Trust
(l)(ii)* Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit (l)(i))
(m) Inapplicable
(n)* Consent of Independent Public Accountants
(o) Inapplicable
(p)* Initial Subscription Agreement
(q) Inapplicable
(r)* Financial Data Schedule
___________
* To be Filed by Amendment.
** Previously Filed.
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for
Registrant's shares of beneficial interest to be filed by amendment to this
Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
Registration fees . . . . . . . . . . . . . . . $ *
New York Stock Exchange listing fee . . . . . . *
Printing (other than certificates) . . . . . . . *
Engraving and printing certificates . . . . . . *
Fees and expenses of qualification under
state securities laws (excluding fees
of counsel) . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . *
NASD fee . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . $ *
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
Prior to August 10, 1998 the Trust had no existence. As of the
effective date, the Trust will have entered into a Subscription Agreement
for [ ] shares with [ ] and an Underwriting
Agreement with respect to [ ] shares with the Underwriters.
Item 28. Number of Holders of Shares
Number of
Title of class Record Holders
-------------- --------------
Shares of Beneficial Interest 0
Item 29. Indemnification
Article V of the Registrant's Agreement and Declaration of Trust provides
as follows:
Section 5.1. No Shareholder of the Trust shall be subject in such
capacity to any personal liability whatsoever to any Person in connection
with Trust Property or the acts, obligations or affairs of the Trust.
Shareholders shall have the same limitation of personal liability as is
extended to stockholders of a private corporation for profit incorporated
under the general corporation law of the State of Delaware. No Trustee or
officer of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the
Trust, save only liability to the Trust or its Shareholders arising from
bad faith, willful misfeasance, gross negligence (negligence in the case of
those Trustees or officers who are directors, officers or employees of the
Trust's investment advisor ("Affiliated Indemnitees")) or reckless
disregard for his duty to such Person; and, subject to the foregoing
exception, all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs
of the Trust. If any Shareholder, Trustee or officer, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability, subject to the foregoing exception, he shall not, on account
thereof, be held to any personal liability.
Section 5.2. a. The Trust hereby agrees to indemnify the Trustees and
officers of the Trust (each such person being an "indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable counsel
fees reasonably incurred by such indemnitee in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set
forth above in this Section 5.2 by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall not have
acted in good faith in the reasonable belief that his action was in the
best interest of the Trust or, in the case of any criminal proceeding, as
to which he shall have had reasonable cause to believe that the conduct was
unlawful, provided, however, that no indemnitee shall be indemnified
hereunder against any liability to any person or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence (negligence in the case of Affiliated Indemnitees),
or (iv) reckless disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (i) through (iv) being
sometimes referred to herein as "disabling conduct"). Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding
by such indemnitee was authorized by a majority of the Trustees.
b. Notwithstanding the foregoing, no indemnification shall
be made hereunder unless there has been a determination (1) by a final
decision on the merits by a court or other body of competent jurisdiction
before whom the issue of entitlement to indemnification hereunder was
brought that such indemnitee is entitled to indemnification hereunder or,
(2) in the absence of such a decision, by (i) a majority vote of a quorum
of those Trustees who are neither "interested persons" of the Trust (as
defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding
("Disinterested Non-Party Trustees"), that the indemnitee is entitled to
indemnification hereunder, or (ii) if such quorum is not obtainable or even
if obtainable, if such majority so directs, independent legal counsel in a
written opinion conclude that the indemnitee should be entitled to
indemnification hereunder. All determinations to make advance payments in
connection with the expense of defending any proceeding shall be authorized
and made in accordance with the immediately succeeding paragraph (c) below.
c. The Trust shall make advance payments in connection with
the expenses of defending any action with respect to which indemnification
might be sought hereunder if the Trust receives a written affirmation by
the indemnitee of the indemnitee's good faith belief that the standards of
conduct necessary for indemnification have been met and a written
undertaking to reimburse the Trust unless it is subsequently determined
that he is entitled to such indemnification and if a majority of the
Trustees determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the
following conditions must be met: (1) the indemnitee shall provide
adequate security for his undertaking, (2) the Trust shall be insured
against losses arising by reason of any lawful advances, or (3) a majority
of a quorum of the Disinterested Non-Party Trustees, or if a majority vote
of such quorum so direct, independent legal counsel in a written opinion,
shall conclude, based on a review of readily available facts (as opposed to
a full trial-type inquiry), that there is substantial reason to believe
that the indemnitee ultimately will be found entitled to indemnification.
d. The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be lawfully
entitled.
e. Subject to any limitations provided by the 1940 Act and
this Declaration, the Trust shall have the power and authority to indemnify
other Persons providing services to the Trust to the full extent provided
by law as if the Trust were a corporation organized under the Delaware
General Corporation Law provided that such indemnification has been
approved by a majority of the Trustees.
Insofar as indemnification for liabilities arising under the Act, may
be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Trust's accounts, books and other documents are currently located
at the offices of the Registrant, c/o BlackRock Advisors, Inc., 345 Park
Avenue, New York, New York 10154 and at the offices of , the
Registrant's Custodian and , the Registrant's Transfer Agent
and Dividend Disbursing Agent.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Act, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective; (ii)
for the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York,
on the 10th day of November, 1998.
/s/Ralph L. Schlosstein
-----------------------------------
Ralph L. Schlosstein
President
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities on the 10th day of November 1998.
Name Title
---- -----
/s/Andrew F. Brimmer Trustee
---------------------------------
Andrew F. Brimmer
/s/Richard E. Cavanagh Trustee
---------------------------------
Richard E. Cavanagh
/s/Kent Dixon Trustee
---------------------------------
Kent Dixon
/s/Frank J. Fabozzi Trustee
---------------------------------
Frank J. Fabozzi
/s/Laurence D. Fink Trustee
---------------------------------
Laurence D. Fink
/s/James Grosfeld Trustee
---------------------------------
James Grosfeld
/s/James Clayburn LaForce, Jr. Trustee
---------------------------------
James Clayburn LaForce, Jr.
/s/Walter F. Mondale Trustee
---------------------------------
Walter F. Mondale
/s/Ralph L. Schlosstein Trustee and President
--------------------------------- (Chief Executive Officer)
Ralph L. Schlosstein
/s/Henry Gabbay Treasurer (Principal Financial
--------------------------------- and Accounting Officer)
Henry Gabbay
